Tuesday, September 13, 2011

China's Plan for Gold and Fiat Currencies

Remember those WikiLeaks Department of State cables that grabbed the attention of the mainstream media back in late November 2010?  Seems like a lifetime ago, doesn't it?  It's just so "yesterday", isn't it?.

Well, apparently, WikiLeaks has just finished leaking Department of State cables and I happened to notice this unclassified gem from the Beijing Embassy dated April 28th, 2009 released on August 30th, 2011.  The title of the cable "MEDIA REACTION: U.S.-CHINA-JAPAN RELATIONS, U.S. POLICY, CHINA'S GOLD RESERVES" sounds rather innocuous, doesn't it.  Yet, reading through the last section of the Editorial Quotes, we come upon this interesting paragraph:


Apparently, according to China Radio International's newspaper World News Journal, China is accumulating gold in an attempt to lead other countries away from using either the euro or the United States dollar as their reserve currency.  It seems evident that China is well aware of the theory that the United States and Europe have conspired to suppress the price of gold to weaken it as a reserve asset, a favourite story from the conspiracy crowd.  I find it fascinating that China is discussing using gold as an alternative to the USD and euro with other nations.  Talk about hitting the rest of the world below the belt while they are down!

According to financial statistics released by the People's Bank of China for the first half of 2011, the PBC has gold reserves of 33.89 million ounces or 1054.1 metric tonnes (one metric ton of gold contains 32,150 troy ounces).  According to the World Gold Council, China has the sixth largest gold reserves in the world but, as a percentage of their total reserve assets, has a very small gold portfolio in relative terms.  Here is a list current to August 2011 showing the top ten country gold holdings and the percent of gold in their total reserves:


As background information, at the end of June 2011, China's foreign exchange reserves stood at $3.1975 trillion, an increase of 30.3 percent on a year-over year basis.  This gives China plenty of foreign currency to add to their gold reserves.

China is in the fortunate position of being the world's largest gold producing nation.  According to statistics from China's Ministry of Industry and Information Technology, China produced 73.412 tonnes of gold in the first quarter of 2011, up 4.63 percent from the previous year.  China has been the world's largest producer of gold for the past three years with increased production levels every year since 2004.  In 2010, China produced 340.88 tonnes of gold, up 8.6 percent from 2009.  China projects that gold production will rise an additional 10 percent in 2011.  Some analysts note that China's gold mining companies are in the fortunate position of finding more gold reserves than they are producing.

Not only has China's central bank prioritized investing in gold, China's citizens also have quite an appetite for the yellow metal.  According to the World Gold Council's Gold Demand Trends Q2 2011 report, China and India were responsible for 52 percent of global bar and coin investment and 55 percent of global jewellery demand in the second quarter of 2011.  On a year-over-year basis, total consumer demand for gold rose 25 percent in China, well above the world average demand growth rate of 7 percent.  Back in 2000, China was responsible for only 6 percent of the world's total gold demand; this climbed markedly to 18 percent in 2010.  As of the 2010 year end, total gold demand in China reached 706.7 tonnes.  In the second quarter of 2011, jewellery demand in China rose 16 percent on a year-over-year basis reaching 102.9 tonnes.  Chinese consumers prefer 24 carat gold products even at these elevated prices, indicating that there is an investment motive to their purchases.  To compare, United States demand for jewellery fell 8 percent on a year-over-year basis to 21.7 tonnes of mainly 10 and 14 carat items.  Chinese consumers were the second largest purchasers of gold coins and bars after India, consuming 53 tonnes of gold in coin and bar form.  The world's total gold supply in the second quarter of 2011 reached 1058.7 tonnes, down 4 percent from the previous year.  

With China's central bank sitting on over $3 trillion of foreign fiat currency including the beleaguered euro and United States dollars, it will be interesting to see if they resume their purchases of gold.  As stated in the Department of State cable, China's future moves in the gold market may well translate to additional gold purchases by other nations, weakening the position of both the euro or the USD as their reserve investment of choice.  Our current debt, weak leadership and weak economies make us most vulnerable…and my suspicion is that the People's Bank of China is well aware of their strengths and our weaknesses.

36 comments:

  1. Hmm. So China is a leading producer of gold and China wants everyone to believe that they're going to force a return to the gold standard.

    But if we do return to the gold standard, won't those countries with a lot of debt held in Chinese hands have to hand over their gold reserves to pay it off? And if they do that, won't China have all the gold? And if China has all the gold, won't their products for export be so prohibitively expensive (compared to the rest of us) we can't buy them? So, is that likely or is it likely that they want the gold produced today to be more valuable?

    I'm asking, here.
    Jenn

    ReplyDelete
  2. Trading those fiat currencies off in exchange for gold seems like a pretty good plan to me. The Chinese are ahead of the curve on this one. If the USD ever loses its status as world reserve currency, all those dollars are going to head home and cause hyperinflation in the US. What would you rather be holding then? USDs? Or gold? I'll take gold, thanks.

    ReplyDelete
  3. I think we are going to have a 1978/80 event happen...COB is saying 2013/15

    ReplyDelete
  4. I agree with Jenn. This contradicts China's policy to keep its currency low, relative to the US dollar. Otherwise, their manufacturing and export advantage would evaporate, and their economy would crumble. And if they were really serious, they would have converted those trillions of US dollars in reserves into gold, rather than just buying a measly few tonnes.

    ReplyDelete
  5. PJ you may want to look at Ackerman's report on the HKD on how this may play out...I'll try an find a link,but it is posted up at Business insider

    ReplyDelete
  6. http://www.businessinsider.com/ackmans-big-presentation-on-buying-the-hkd-2011-9

    ReplyDelete
  7. Exactly - this is why #occupywallstreet has been going on since last Saturday in NYC's financial district.

    ReplyDelete
  8. What if... Ft. Knox is empty?

    ReplyDelete
  9. the Chinese understand that their US denominated IOUs (AKA treasury bonds) are, in fact worthless. They realise the deal they did with the US (we make cheap stuff, you buy and then, when you have no more surplus, we'll lend you the money back) menas they will NEVER get thier principal back (that is to say effectively get their principal back as the inflated value of the dollar will be worthless). They will accumilate USD for eve going forward as they KNOW that it is inevitablet hat the US will have to take a SUBSTANTIAL USD depreciation in order to sort out its economy (even if they will get a short-term APPRECIATION thanks to the dire state of the Ueropean economies

    ReplyDelete
  10. Throughout history China has often demonstrated itself as being a master of strategy, so what could its plans be?

    China has has amassed enourmous fx reserves with which it could facilitate the re-structuring of its economy away from export towards internal demand.

    Once it has done this to a sufficient degree, and having amassed a enough commodities and bought up huge swathes of Europe on the cheap (as the EU are increasingly desperate for financial aid to solve their problems), China could very easily dump its Treasury Bonds and allow the Yuan to float freely thereby raising the standard of living for its population and positioning the Yuan as the new global reserve currency.

    ReplyDelete
  11. Get'cher gold at Wal Mart!!!

    ReplyDelete
  12. You missed a big player, India

    ReplyDelete
  13. The men have no hearing aids and cannot speak. Using a crude form of sign language, the coach signaled the men to get to the ground. Yet, after the bullets stopped flying, the men thought that it was a new training drill.1 If the men had access to hearing aids.
    atlanta roofing companies

    ReplyDelete
  14. As a result of the writer, a great webpage, that supplies up to date and also awesome rock. I'm sure a long while from t shirt of those respectable as a result a great deal new, relatively excited in the caution.

    ReplyDelete
  15. our acquired an incredibly practical web site For a great and here researching about some time nowadays. My organization is usually any kind of amateur although your current success is very lots any creativeness for me. Continue the wonderful.For more info click on Dennis C. Kramer

    ReplyDelete
  16. Thank you for posting such a great article! I found your website perfect for my needs. It contains wonderful and helpful posts villa santorini

    ReplyDelete
  17. This is sometimes a wonderful sound view publish. Rewarding one who is actually trying to find the indicates with this ingredient. It'll unquestionably aid instruct myself. David A. Thole

    ReplyDelete
  18. Exactly what a fantastic blog. I have found this website extremely intriguing due to the fact We've got essentially the most study info. Your blog assists everyone out and about normally I don’t discover how much time I've got to spend forgetting the best info.For more info click on Rachel J. Payne

    ReplyDelete
  19. Thanks for the unmatchable diary.it was rale useful for me.navigator sharing specified ideas in the instant as symptomless.Buy YouTube Subscribers

    ReplyDelete
  20. Thanks for the unmatchable diary.it was rale useful for me.navigator sharing specified ideas in the instant as symptomless.this was actually what i was labour for,and i am voluntary to came here!the residence zanzibar

    ReplyDelete
  21. Print Manager software gives you control of your customers printer usage. Easily collect payment for prints, and monitor printer all usage.
    Print Manager

    ReplyDelete
  22. I know your blog now, and I loved the content! very useful, will continue being a reader, Thanks for the info!memories from personal history

    ReplyDelete
  23. Very informative and i should be acted upon your ides.

    ReplyDelete
  24. Your site is good Actually, i have seen your post and That was very informative and very entertaining for me. Thanks for posting Really Such Things. I should recommend your site to my friends. Bath Towels

    ReplyDelete
  25. Appreciate it for that unmatchable record. it had been rale great for everyone. World best ibeacon navigator giving given ideas within the fast as symptomless.

    ReplyDelete
  26. Appreciate it with the unmatchable diary. it had been rale useful for myself. navigator sharing given suggestions within the instant seeing that symptomless.local based marketing

    ReplyDelete
  27. What else may I get that kind of info written in such a perfect approach? I’ve a undertaking that I am simply now operating on, and I have been at the look out for such info.SEO Liverpool

    ReplyDelete
  28. Nous sommes offre 2014 Ray Ban Wayfarer avec le prix le plus bas. Toutes les lunettes de style à notre magasin en gros ont la qualité impôt sur guarantee.No et la livraison gratuite.

    ReplyDelete
  29. Nous sommes offre 2014 Ray Ban Wayfarer avec le prix le plus bas. Toutes les lunettes de style à notre magasin en gros ont la qualité impôt sur guarantee.No et la livraison gratuite.

    ReplyDelete
  30. In 1952, Ray-Ban created another classic style, the Ray Ban Wayfarer 2140, this time with plastic frames. They soon became popular in Hollywood, and can be seen on James Dean in 1955’s Rebel Without a Cause.

    ReplyDelete
  31. Programa espacial Asics Mini Cooper junto con la técnica de inducción afectar TRUSSTIC, para aumentar sus movimientos normales actuales y también la respuesta de la Tierra.

    ReplyDelete
  32. Bienvenue à acheter les meilleurs tods en ligne. Vous pouvez obtenir la qualité officielle et le prix pas cher à notre magasin. Livraison gratuite!!!

    ReplyDelete
  33. I went over this internet site and I believe you have a lot of fantastic information, bookmarked Your Site.

    ReplyDelete
  34. Very useful post. This is my first time i visit here. I found so many interesting stuff in your blog especially its discussion. Really its great article. Keep it up

    ReplyDelete
  35. The article make every detail of the story depicts streaming with the best, and every movement of the characters all write so lifelike.

    ReplyDelete