China Prepares To Launch Gold ETFs As Utah Becomes First State To Make Gold And Silver Legal Tender

Tyler Durden's picture

Following Friday's news that China has now surpassed India as the world's largest buyer of gold, it is becoming increasingly obvious that the country is trying to capitalize on the popular interest in the precious metal by transferring the trading infrastructure away from US to domestic capital markets. First, it recently launched a 1 kilo gold futures contract on the HK Merc in an obvious attempt to undermine the Comex monopoly in the space, and next it seems that China has the GLD plain in its sights, as it plans to start exchange-traded funds, tapping rising demand in China, the world’s biggest investment market for the precious metal. Often blamed for the recent volatility in the price of gold, precious metal ETFs have been primarily an instrument available to those with access to the US market. That appears to be ending, and with an entire nation suffering from gold fever (as inflation continues to be goalseeked by the China politburo above expectations in what appears to be a programmed attempt by the Chinese central planners to push its population into gold hoarding) and about to be offered a simple way of investing in (paper) gold, it is likely that the price of gold (and soon thereafter all other commodities) will see unprecedented spikes in price in either direction as millions more are given direct exposure to trading the non-dilutable currency equivalent.

From Bloomberg:

“There are some complexities, as the central bank is in charge of gold management, while we still need to go through the procedures for launching new exchange products,” Wang Zhe, chairman of the bourse, said at a Shanghai forum. There is no timetable and the exchange is working with regulators on the plan, Wang said. China is the world’s largest gold producer and second-largest in overall consumption.

China doesn’t have gold ETFs and investors usually choose to buy physical gold, or invest through contracts traded on the Shanghai Gold Exchange, the Shanghai Futures Exchange or through banks. Lion Fund Management Co. in January said it raised more than 3.2 billion yuan ($483 million) for China’s first gold fund to be invested in overseas exchange-traded products.

Investment demand in China jumped 123 percent to 90.9 metric tons in the first three months. Total consumption including jewelry gained 47 percent from a year ago to 233.8 tons, the council said. That still lags behind India’s 291.8 tons. China demand may double before 2020, the council said.

Global investment increased 26 percent to 310.5 tons in the quarter. While bar and coin purchases climbed 52 percent to 366.4 tons, holdings in exchange-traded products backed by the metal declined. ETP assets dropped 69.9 tons from December through March, according to data compiled by Bloomberg, after reaching a record 2,114.6 tons.

Of course this merely opens up the path to currency "optionality" - after all it is not Guangdong or some other Chinese province, but Utah which just voted to make gold and silver legal tender: a previously preposterous (and very much illegal) idea. AP reports:

Utah legislators want to see the dollar regain its former glory, back to the days when one could literally bank on it being "as good as gold."

To make that point, they've turned it around, and made gold as good as cash. Utah became the first state in the country this month to legalize gold and silver coins as currency. The law also will exempt the sale of the coins from state capital gains taxes.

Craig Franco hopes to cash in on it with his Utah Gold and Silver Depository, and he thinks others will soon follow.

The idea is simple: Store your gold and silver coins in a vault, and Franco issues a debit-like card to make purchases backed by your holdings.

He plans to open for business June 1, likely the first of its kind in the country.

"Because we're dealing with something so forward thinking, I expect a wait-and-see attitude," Franco said. "Once the depository is executed and transactions can occur, then I think people will move into the marketplace."

The idea was spawned by Republican state Rep. Brad Galvez, who sponsored the bill largely to serve as a protest against Federal Reserve monetary policy. Galvez says Americans are losing faith in the dollar. If you're mad about government debt, ditch the cash. Spend your gold and silver, he says.

His idea isn't to return to the gold standard, when the dollar was backed by gold instead of government goodwill. Instead, he just wanted to create options for consumers.

"We're too far down the road to go back to the gold standard," Galvez said. "This will move us toward an alternative currency."

Utah is first but certainly not last:

Earlier this month, Minnesota took a step closer to joining Utah in making gold and silver legal tender. A Republican lawmaker there introduced a bill that sets up a special committee to explore the option. North Carolina, Idaho and at least nine other states also have similar bills drafted.

At the moment, Franco's idea would generally be the only practical use of the law in Utah, given the legislation doesn't require merchants to accept the coins, either at face value - $50 for a 1-ounce gold coin - or market value, currently almost $1,500 per ounce. And no one expects people will be walking around town with pockets full of gold and silver.

Matt Zeman, market strategist for Kingsview Financial in Chicago, expects more people will start investing in gold as America's growing debt and bankruptcies in other countries continue to decrease the value of government-backed money.

"You've seen gold replacing these currencies as safety instruments," Zeman said. "If I don't feel good about the dollar or other currencies, I'm putting my money in precious metals."

Some supporters, including the law's sponsor, seek to push Congress toward removing the tax burdens that discourage use of the coins, such as a federal capital gains tax.

"Making gold and silver coins legal tender sends a strong signal to Congress and the Federal Reserve that their monetary policy is failing," said Ralph Danker, project director for economics at the Washington, D.C.-based American Principles in Action, which helped shape Utah's law. "The dollar should be backed by gold and silver, so we have hard money."

So, uh, does that mean that NORFED's Bernard von NotHaus can now change his facebook status from "incarcerated terrorist" to "visionary revolutionary"? And one can be quite confident that as soon as China (inconjunction with Russia and other countries, not to mention Zimbabwe) will soon proceed to allow the same "option" for their own consumers, as increasingly more countries realize that the $6 trillion in dollar-denominated assets continue to place the world at the exclusive mercy of the Fed, as any global "risk flaring" episode would require the activation of the Fed's FX swap lines designed to meet 'short-term' dollar deficiency needs... which just may not be activated for those which Hillary Clinton deems to be "terrorist" or "dictatorial" regimes at any given moment.

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silberblick's picture


Follow the link below to find out why the Hong Kong Mercantile Exchange must be seen and understood as an extension of the Chinese government and its long term goals, and consequently, why it will not help create an equitable or realistic price discovery mechanism for gold. Not for now anyway.


Dejean Splicer's picture

Working for the Crimex now, ah silberblick?

silberblick's picture

disinforming the readers with your comments again?

Hephasteus's picture

Everybody wants hope but there's just new bullshit papering over old bullshit.

silberblick's picture

yes, paper is BS ... buying physical is the best hedge (hope) there is.

Harlequin001's picture

This just demonstrates that China is still part of the gold price fixing cartel.

The whole point of an ETF is to sell the same shares multiple times thereby having more than one investor hold the same rights to the same asset with out any commensurate increase in price...

To date Asians and Chinese don't have access to the US price fixing system sand therefore have to buy physical in whatever form. This now opens the door to more price manipulation down. Don't bank on a collapse of the fiat credit system just yet...

zaknick's picture

What about the potential to use those ETFs as gold backed slips? Like gold backed currency. If the PBoC is behind the ETF that makes it a bit different from GLD with all its smoke and mirrors custodians.

Why encourage a billion+ Chinese to hoard gold and silver and then launch an ETF to manipulate the price? Why did they make it legal in 2001 for private ownership of gold?

No, these Chinamen are up to something real good! Finger licking good: the dollar apocalypse!

Besides, that's how they create that internal consumption market.

Long Yuan! Long China, bitchez!

They'll play ball until the dog just won't hunt no more!

disabledvet's picture

i thought the collapse of the fiat system is precisely what those ETF's are "banking" on?  that is actual money they are using, no?

I am Jobe's picture

Garbage in Garbage out period.

disabledvet's picture

"with a little gold in the middle"?  doesn't sound like a shit sandwich.

terryfuckwit's picture

a good point silberblick, perhaps just new

manipulators coming into the market, perhaps not ,

wish i had a crystal ball, fiat has survive a long time

people take electronic transfers and trading

for granted... when a few countries wake up

with no fiat in those machines it all changes

the trust is gone asian countries already have built in distrust and byuy physical???

the market

doggings's picture

at least he's spamming on topic now tho..

Ecoman11's picture

ICBC acquired 10% equity interest in HKMEx in 2009. ICBC is state owned by China.

beastie's picture

Sorry to jump in at the top of the queue.

Warren over has put together a database that tracks silver going in and out of SLV and has collated some pretty good info out of it.

The intention is to try and track the "dark pools" of Silver out there and get a bigger understanding of how the Silver flows around the world.

fuu's picture


Follow the link below to find out why the Hong Kong Merchantile Exchange Comex/Nymex/Globex/CBOT/CME complex must be seen and understood as an extension of the Chinese American government and its long term goals, and consequently, why it will not help create an equitable or realistic price discovery mechanism for gold. Not for now anyway.

Fixed that for you.


Harlequin001's picture

I recently had a chat with an investment banker from Singapore regarding an ETF in Asia. Turns out it holds it's gold at HSBC in London.

End of discussion...

And now we have ETF's holding real physical paper gold. Make sure you do your own DD...

DosZap's picture



As long as ANY American bank, member of the Cartels is HOLDING the metal, it is a friggin SCAM.

Why China wants to set up ETF's is beyond me anyway.

They are smart, and the REAL deal held in your hands is the only way to go.

Their system will be corrupt as soon as it starts.

So, where's the competition?

silberblick's picture

Fuu man -- speakers of high context languages should not have had a problem reading between the lines and understanding that which you have superfluously spelled out.

Tail Dogging The Wag's picture

Silver, Gold, Land, bitchez!


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DaddyO's picture


State Gold! Bitchez


yabyum's picture

I have lived here for 57 years, don't turn your back, they will steal your metal. They run their liquor stores in the Cuban/socialist model.

Hooter Shaker's picture

Screw Utah.   No way I'm paying for anything with gold or silver as long as they're taking Uncle Ben's funnybux.  The only way I'm parting with my PM's is if I don't have enough cash to purchase something I need.

tmosley's picture

That's the point.  By making them currency, you don't pay the state's capital gains tax when you trade coin for paper.  This isn't about transacting in gold and silver, it is about not being taxed on the same and winding up with ever less.

DoChenRollingBearing's picture

tmosley, are you saying that if you paid your taxes in Utah with gold that you had bought at a much lower price than now, that you would avoid paying the ODIOUS 28% "Collectable Capital Gain Tax"?

If I understand that correctly, that makes St. Georges, Utah look even better...

tmosley's picture

No, they can only grant immunity to their own state taxes.

I wouldn't look to move any time soon.  Not until they become openly hostile to the Federal government by refusing to enforce the federal tax code.

I'd rather live in a state that has no form of income taxes at all, like Texas ;)

DoChenRollingBearing's picture

If I ever move back to Texas (and it ain't gonna happen because my wife is a city girl) it would be Llano County.

DosZap's picture


Well I don't know how long you have been away, but we do have cities here..............BIG one's.

Hell there's only 17+ million here now.........and they keep coming as fast as they can.

Where do you live NYC?

disabledvet's picture

you could argue "you do get a benefit from associating with the government."  i see your point however.

h3m1ngw4y's picture

that is exactly fofoa thinking. gold as a long term wealth reserve and bucks as a day to day spending tool. we witness the seperation money functions in real time

Blano's picture

Is Utah actually willing to PAY out in gold and silver??  If not, don't give me this "alternative currency" bullshit. 

StychoKiller's picture

Precisely!  This is an instance of "Do as I say, and NOT as I do!"

traderjoe's picture

Sometimes ZH'ers can be cynical to a fault. ANY move to legitimize gold and silver as currency is a step closer to the end of fiat.

IMHO - we don't want to be hoarders of PM's but their ambassadors.

thriftymost's picture

Speak for yourself.

I'd rather be an ambassador for social credit.

Arius's picture

i am not sure if these chinese can be really liberated...but they better come to their

Long-John-Silver's picture

Here is how you'll exchange Gold and Silver for goods and services.

You will walk into a retail establishment such as a grocery store with your Silver or Gold coin. The person behind the counter will weigh and measure it to make sure is not a Chinese counterfeit and It's current value will be checked. If you like the current price you give it to that person which then adds the coins value to your account or Tab in exactly the way a debt card works. As you purchase goods and services the value of goods and services are deducted from your account.

Oracle of Kypseli's picture

My take:

Cash your paycheck.

Spend for your needs with dollars.

Keep some dollars for unexpected needs

Buy more coins with the rest.

Rince and repeat.


DoChenRollingBearing's picture

Oracle is exactly right.

When I have money come in, some of that gets spent on gold, no matter how expensive it is that day.

I also throw 20s and 100s on the FRN pile in the safe, so I can make a "quick set of purchases", you know, if the ATMs stop working...


O/T, but why is it that the hardest captchas are late at night and on the weekends?  Wee-yed.

Harlequin001's picture

DoChen, Long-John's idea sounds good until you see a company with massive amounts of gold bullion on 'deposit'. An unscrupulous retailer would simply pay himself the gold, bust the company and walk away with the lot.

You can't beat a system that takes only a fair rate and lets you keep the change.

Long John hits a good point; how do you exchange a large and very valuable gold coin for a bag of sugar. The problem is that gold is not readily available as money is recognisable small denominations; it is an investment assets only which trades at a premium, regardless of capital gains.

The only way I can see is to take your assets overseas and use them as collateral through a trust company for access to liquidity. Only then can you withdraw enough to buy a bag of sugar without relying on anyone else with a vested interest to give you your money back...

OldPhart's picture

That's why I've been buying silver.  It's smaller value makes it ideal for smaller transactions.  Buying groceries with gold becomes a major financial do you make change?

kito's picture

dont think we are going back to 1950. 

Jalaluddin's picture

Are you actually suggesting that gold and silver could be used in a modern computerised society? This is sedition! You must be a terrorist like that guy who was sentenced to 8 years recently for minting gold coins.

disabledvet's picture

that's Florida.  "they're all terrorists down there."

TradingJoe's picture

Since being in physical for most of the 3 year's "rally" and having shorted the "markets" via puts I do am on the deflationary side, getting another paper asset out of China makes me cheer getting another "short"!

Most people forget China is a COMI REGIME with "western style economics" aka take all you can give nothing back!

Be aware of anything coming from out there!


Oracle of Kypseli's picture

Good hedge. can still loose FRN's Be nimble.

Popo's picture

If anyone thinks the Chinese gold ETF will be any less crooked than its Western counterparts, they're kidding themselves.


Oracle of Kypseli's picture

Both the US and China want to keep prices from exploding for different reasons.

The US for concealing their printing and China to get an opportunity for the gov and the citizenry to accumulate.

Place your bets.