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China Says It Must Add To Gold Reserves To Promote Yuan Globalization And As An FX Hedge

Tyler Durden's picture




 

Back in September, when we provided the monthly observation on what has become a record year to date surge in Chinese imports of gold from Hong Kong, we reminded readers that "in December 2009, the China Youth Daily quoted State Council advisor Ji as saying that a team of experts from Beijing and Shanghai have set up a "task force" last year to consider growing China's gold reserves. "We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him. Has China managed to accumulated 6,000 tons yet?  We won't know for sure until the official disclosure which will come when China is ready and not a moment earlier, but at the current run-rate of accumulation which is just shy of 1,000 tons per year, it is certainly within the realm of possibilities that China is now the second largest holder of gold in the world, surpassing Germany's 3,395 tons and second only to the US."

Two days ago we showed that the relentless importing of gold in China continues, yet what has been missing is an update direct form the horse's mouth how China feels toward gold (because we certainly know how it feels toward US Treasury paper). Today, we finally got one straight from Beijing, and that during a very carefully supervised time when the 18th Communist Congress is still in session, and every word out of China has profoundly telegraphic implications.

From Bloomberg:

  • China needs to add to its gold reserves to ensure national economic and financial safety, promote yuan globalization and as a hedge against foreign- reserve risks, Gao Wei, an official from the Department of International Economic Affairs of Ministry of Foreign Affairs, writes in a commentary in the China Securities Journal today.
  • While gold prices are currently near record highs, China can build its reserves by buying low and selling high amid the short-term volatility, Gao writes in newspaper
  • China’s gold reserve is “too small”, Gao says

And there it is: while many have speculated that China, which has not given an update of its official holdings in nearly 4 years, is quietly building up its gold reserve holdings behind the scenes, there was no reason to worry. The time to worry would be when China was starting to give indications it is prepared to tell the world what its true gold holdings are (by now certainly well over 1000 tonnes). And the above piece from Wei is just that: because in saying very little, the Chinese official with a key political post has just given the first hint that China is preparing to give its official gold far greater focus. And from there, the time until China releases an IMF update on its official reserve holdings will be measured in days if not hours. Because all the gold will have long been accumulated.

And once that happens it will be too late to buy any incremental gold. Or tungsten.

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Wed, 11/14/2012 - 00:16 | 2978775 I think I need ...
I think I need to buy a gun's picture

fiat currencies are the best and gold only as a wealth reserve

Wed, 11/14/2012 - 00:48 | 2978838 nope-1004
nope-1004's picture

Ya, like totally.  Can't slick me any crack from my hommies with no freaking gold, dude kno I'm sayin.  I paste 'em fitties.... get me some crack, a little hooch, some weed.  S'all good, bro!  I'm sayin'.

 

 

Wed, 11/14/2012 - 01:01 | 2978861 TruthInSunshine
TruthInSunshine's picture
China Says It Must Add To Gold Reserves Because The Fed, ECB & Bernanke Are "Batshit Crazy"

 

Fixed it.

Wed, 11/14/2012 - 01:05 | 2978870 markmotive
markmotive's picture

Gold demand in China is just getting started.

http://www.planbeconomics.com/2012/03/29/gold-demand-in-china-just-getti...

 

Wed, 11/14/2012 - 01:20 | 2978893 mick68
mick68's picture

China already has 10K+ reserves guaranteed. But go ahead, believe their official numbers if you like.

Wed, 11/14/2012 - 01:40 | 2978920 fourchan
fourchan's picture

the red army is digging up africa and south america, and god knows where else, for free gold from their free slave army of zombies.

Wed, 11/14/2012 - 01:58 | 2978933 Seer
Seer's picture

Are you saying that Chinese are doing the digging abroad?  Or, are you saying that the Chinese are being forced at home to dig in their own backyards?

Please clarify.

Once clarified I'll be able to pass along the info to the hordes of "free" folks who are staring intently at their iCrap, which was... made in China!

Wed, 11/14/2012 - 02:07 | 2978942 Michaelwiseguy
Michaelwiseguy's picture

"I will steal the majority of peoples money, wealth, and ability to prosper by owning the money supply and making the monetary rules myself." - Dr. Evil

Wed, 11/14/2012 - 02:08 | 2978949 Richard Chesler
Richard Chesler's picture

When China says Gold they actually refer to gold plated tugnsten.

The proof is in the 'Made in China" shitty sticker.

Fuck you China, and fuck you Bernanke.

 

Wed, 11/14/2012 - 04:43 | 2979062 savagegoose
savagegoose's picture

 " IN GOLD WE TRUST "

Text on new Chinese currency.

Wed, 11/14/2012 - 08:11 | 2979194 GetZeeGold
GetZeeGold's picture

 

 

I can't look - Chuck Munger

Wed, 11/14/2012 - 05:42 | 2979093 Tango in the Blight
Tango in the Blight's picture

There is no Red Army since the end of 1991.

Or maybe you mean the People's Liberation Army?

Wed, 11/14/2012 - 07:30 | 2979154 lewy14
lewy14's picture

Exactly. And furthermore, there's no Department of War in the US since WWII. It's the Department of Defense. So yeah, totally different thingies.

Wed, 11/14/2012 - 07:33 | 2979160 Snidley Whipsnae
Snidley Whipsnae's picture

TI Sunshine... sounds about right. I like the edit.

Wed, 11/14/2012 - 08:51 | 2979278 DeadFred
DeadFred's picture

If you look at this report from the right angle you will see a truly remarkable thing, a politician who is telling the truth. Didn't see it coming.

Wed, 11/14/2012 - 01:41 | 2978921 I think I need ...
I think I need to buy a gun's picture

well like ya kno g if i cam wuth thee au u wouldn't want thee au to be like minus some four thee ccrack, or then the truouibley begins and we candiiit iave htaaat

Wed, 11/14/2012 - 01:56 | 2978932 gdogus erectus
gdogus erectus's picture

Looks like the anti gold spam bot forgot to give itself a down arrow.

Wed, 11/14/2012 - 02:05 | 2978946 putaipan
putaipan's picture

you makin' fun of my spellin'.....bayonet up yer ass!   china still has banksters.... all of their gold belong to them!

Wed, 11/14/2012 - 05:42 | 2979092 Al Gorerhythm
Al Gorerhythm's picture

The irony; a paper bug insinuating that the gold bug should get an education.

Wed, 11/14/2012 - 05:30 | 2979086 TraitorsHang
TraitorsHang's picture

Did you read your post before you clicked submit? I'm just curious....

Wed, 11/14/2012 - 00:52 | 2978845 xtop23
xtop23's picture

If China is putting this stuff out over the wire, we probably aren't far from escape velocity. 

Currency war over, queue the trade war.

Wed, 11/14/2012 - 01:37 | 2978903 TruthInSunshine
TruthInSunshine's picture

Here's one of the trades of the next decade, along with the when (not if) to short U.S. tnotes (and other sovereign debt AND credit instuments), as well:

 

Is China's incoming leadership hell bent on forcing a dramatic rise in domestic consumption, in order to attempt to offset what is going to be a continued decline in demand for exported goods, at the risk of creating even more quickly rising inflation, and at the risk of not being able to succeed, given the Chinese propensity to save (on a relative basis), which would lead to rising unemployment (a risk factor that's probably more unsettling to the Chinese Establishment than high inflation, given China's demographics)?

Or will China's incoming leadership double down on the export model that's driven their high rate of economic growth thus far, to the point of swallowing even higher inflation imported from abroad (assuming there's not a serious collapse tantamount to a depression in the global economy), even increasing government subsidization of private industry in order to make exports less expensive to foreign purchasers & maintain the highest rate of employment possible given unfolding circumstances, which would almost certainly essentially mean that China has also refused to truly float its currency?

 

 

Wed, 11/14/2012 - 02:04 | 2978938 Michaelwiseguy
Michaelwiseguy's picture

.

Wed, 11/14/2012 - 02:35 | 2978971 Seer
Seer's picture

“We must find new lands from which we can easily obtain raw materials and at the same time exploit the cheap slave labor that is available from the natives of the colonies. The colonies would also provide a dumping ground for the surplus goods produced in our factories.”

- Cecil Rhodes

Wed, 11/14/2012 - 02:02 | 2978940 Seer
Seer's picture

A fucking down arrow?  For what?

Seems like you've got the pickle identified to me.

They've latched on to the growth demon and it's a sure ticket to hell now.

Wed, 11/14/2012 - 05:47 | 2979096 SWIFT 760
SWIFT 760's picture

Perhaps you're getting warmer. The chinks will buy every possible ounce of gold at its current low price. When they acquire, oh say 35k tons, they can do whatever they want...hedge against anything, internal sovereign value, REPLACE PETRO DOLLARS with PETRO GOLD, their options are numerous.

All the while not to start US dollar devaluation panic thus using their USD FX to obtain their desired outcomes. Sun Tzu's Art of War nearly mimics strategy of the chinks.

Wed, 11/14/2012 - 07:49 | 2979171 Snidley Whipsnae
Snidley Whipsnae's picture

TI Sunshine... Your last paragraph... China will continue on the horse that brought them to this point. If they deviate from their current path it will be only slightly and after a great deal of study. What a EUREKA moment it must have been when they were allowed full membership into the WTO... like the day Gates was given the keys to the kingdom by IBM.

China understands that patience is a virtue... and China has the patience to employ patience... :)

"Patience (or forbearing) is the state of endurance under difficult circumstances, which can mean persevering in the face of delay or provocation without acting on annoyance/anger in a negative way; or exhibiting forbearance when under strain, especially when faced with longer-term difficulties. Patience is the level of endurance one can take before negativity. It is also used to refer to the character trait of being steadfast."

http://en.wikipedia.org/wiki/Patience

Wed, 11/14/2012 - 02:08 | 2978948 Newager23
Newager23's picture

We are getting very close to gold break out. I've been nervous that gold could take another tumble because we didn't break through $1800 in the recent move up. However, after the Obama victory, the story for gold has been very bullish. Now we get this quote out of China today - by far the biggest buyer out there. What could be more bullish?

Most of us have become technical traders, after watching gold and silver move up and down like a yo-yo. But I think we getting close to a major break out. And what I mean is a $50 dollar move, followed by a $70 move. Gold will likely jump over $100 in a couple of days. This should happen sometime before xmas. And gold will likely close over $1900 for 2012.

Why? Because the demand for gold is growing in my opinion. And the floor is being set by central banks throughout the world, who are buyers. Any day now we are going to be hearing about another country buying 100+ tons. And then another. Gold is the new reserve currency to own, and countries are figuring this out.

I used to think the only thing that could push down gold was a recovering economy. But I no longer think that is a possibility. Any day now the DOW is going to drop 500 points and then another 500 points the next day. With this drop the layoffs will begin, as corporations try to defend their share price. This will start a downward spiral in the economy. Thus, the economy is toast and not coming back for a long time. 

So, there is no longer a threat to gold going down. Soon the market will figure this out, and that is when we get our $100 up move over two days. Then another $50 up move a few days later. It's coming. I can feel it. I've been early before, so I wouldn't be surprised if gold closes under $1800 at year end. But it won't take long in 2013. This bull market is NOT over.

This is the first post when I spoke about the price of gold when I did not say to be weary of a stock market crash - sending gold prices plunging. I think that threat is gone. It's time to load up on mining stocks and bullion. We are getting ready for the mania phase to kick in. I thought we would have to wait until 2014 or 2015, but now I think it could begin any day. 

www.goldsilverdata.com (for gold & silver mining stocks)

 

 

Wed, 11/14/2012 - 04:23 | 2979048 Nassim
Nassim's picture

Ever heard of monetary deflation? When rich people holding gold are forced to sell it - because it is the easiest real asset to sell.

Wed, 11/14/2012 - 04:53 | 2979069 cossack55
cossack55's picture

Have you also notice that when the moneybags sell that there is never a shortage of buyers.

Wed, 11/14/2012 - 08:07 | 2979189 new game
new game's picture

why would they sell? they are rich already. they bot gold to hedge against - what? - the very system they fucked to a pulp.

rethink your thought dude. 08 gold was the only asset  that held it own relative to the whole mess...

Wed, 11/14/2012 - 07:06 | 2979128 awakening
awakening's picture

Working so well that Europe took the time out to celebrate today - http://www.abc.net.au/news/2012-11-14/anti-austerity-strikes-sweep-europ...

Wed, 11/14/2012 - 00:16 | 2978777 BeerBrewer09
BeerBrewer09's picture

Gold will keep making record highs.

Wed, 11/14/2012 - 00:21 | 2978788 I think I need ...
I think I need to buy a gun's picture

gold won't reach 2k it will be 36k once obama revalues

Wed, 11/14/2012 - 00:59 | 2978856 pitz
pitz's picture

Along with Dow 36,000?  1:1 ratio.  Motherfucking religion.

Wed, 11/14/2012 - 01:43 | 2978919 I think I need ...
I think I need to buy a gun's picture

SOOOOOOOOOOOOO MANY PEOPLE ON ZERO HEDGE DON'T UNDERSTAND GOLD, YOU DON'T WANT IT AS A CURRENCY DEBASEMENT BITCHEZ

Wed, 11/14/2012 - 02:34 | 2978970 hmmtellmemore
hmmtellmemore's picture

If notes do not say explicitly "worth x grains of gold/silver" then devaluing a currency on a "gold standard" is fairly easy.  All it has to do it raise the notes per ounce peg.  

 

A psuedo gold backed currency will placate many people, but won't stop the devaluing, and so won't stop huge deficits and warfare-welfare State.  I'd recommend selling your gold right after the inital gold backing occurs, around 2020 or so.  Then trade your savings for gold again in 4 or 5 years to get ready for the next 10% devaluation.

Wed, 11/14/2012 - 00:19 | 2978783 Bastiat
Bastiat's picture

Bitchez.

Wed, 11/14/2012 - 07:05 | 2979127 ParkAveFlasher
ParkAveFlasher's picture

jien renz!

Wed, 11/14/2012 - 00:20 | 2978784 Yen Cross
Yen Cross's picture

PBoC should be more worried about the " sudden new amerikan "energy policies"... America will be "net exporter" soon...

  Extraction costs 85bbl. Then net exporting? Fuck You U.S.A.

Wed, 11/14/2012 - 02:36 | 2978972 hmmtellmemore
hmmtellmemore's picture

Leading exporter of fresh fission plutonium energy, will deliver to your door.

Wed, 11/14/2012 - 04:11 | 2979042 Yen Cross
Yen Cross's picture

? All Rightie then...

Wed, 11/14/2012 - 00:24 | 2978789 The Shootist
The Shootist's picture

So, does this article imply their pretty content with they're cheaply bought position? And adding more is icing on the cake?

Wed, 11/14/2012 - 00:24 | 2978796 Top_Kill
Top_Kill's picture

My thoughts exactly. Not that I believe it to be true. But from a trading perspective, that would be the play here.

Wed, 11/14/2012 - 00:34 | 2978812 Stuart
Stuart's picture

it means there's a hard floor, a really hard floor and those who think they're smarter than the rest and wish to test it better be damned well paying attention else they'll be left behind covering their underwater shorts without any notice....Naked COMEX shorts better take notice.  They've just been put on the endangered species list.   I wonder if they're smart enough to even know it yet.  

Wed, 11/14/2012 - 08:02 | 2979182 Snidley Whipsnae
Snidley Whipsnae's picture

You get it Stuart... First comment to mention the 'FLOOR' that China has placed under gold.

Of course China and everyone else wants to aquire gold cheaply... but, China will not stop buying physical gold if the paper gold price rises waaay above their floor.

Seems to me that every central bank in the world has suddenly awakened to the fact that they need gold and were foolish to lend/sell their gold reserves. In addition, all of SE Asian peoples are accumulating when possible. If more than half the world's population buys 1/10 oz of gold per year then the supply taken off the market is significant. Especially when central banks are attempting to replace their reserves.

As James Turk said... "Where is all this gold coming from?"

Wed, 11/14/2012 - 08:10 | 2979190 JoBob
JoBob's picture

(Redundant)

Wed, 11/14/2012 - 00:25 | 2978792 Top_Kill
Top_Kill's picture

k

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