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How Do the Chinese View the Gold Market?

Tyler Durden's picture




 

Via Jeff Clark of Casey Research,

How Do the Chinese View the Gold Market?

Have you ever wondered what the typical Chinese gold investor thinks about our Western ideas of gold? We read month after month about demand hitting record after record in their country – how do they view our buying habits?

Since 2007, China's demand for gold has risen 27% per year. Its share of global demand doubled in the same time frame, from 10% to 21%. And this occurred while prices were rising.

Americans are buying precious metals, no doubt. You'll see in a news item below that gold and silver ETF holdings just hit record levels. The US Mint believes that 2012 volumes will surpass those of 2011.

But let's put the differences into perspective. This chart shows how much gold various countries are buying relative to their respective GDPs.

It's widely believed that the majority of the gold flowing into Hong Kong ends up in China, so its total is probably close to double what the chart reflects. Even if none of it went to China, coin and jewelry demand is 35 times greater than the US, based on GDP.

The contrast between how our two nations can buy bullion is striking…

  • In China, you can buy gold and silver at the bank. My teller looked at me oddly when I asked.
  • Bullion is available for purchase at Chinese post offices. I wonder how my local postman would respond if I asked for a tube of silver Eagles.
  • Mints are readily accessible to retail customers. Here, I can only order proof and commemorative products from the US Mint and am forced to go to an independent dealer.
  • A new product design is manufactured every year. This being the Year of the Dragon, many bullion products are emblazoned with dragons. You can still buy last year's rabbit, and next year it will be a snake. The US has two designs, the Eagle and Buffalo; the latter was introduced in 2006 and is available only in gold (if you see a silver Buffalo, it is a "Round" manufactured by a private mint, not the US Mint).

Some will point to cultural affinity to account for the differences. There's some truth to that, though this is a much greater factor in India. Even there, gold jewelry is not viewed as a decoration or an adornment; it's a store of value. It's financial insurance in a pretty bow. In India, gold can be used as collateral, regardless of its form. It's not just an investment that they're trying to make money from; it's more important than that.

But certainly the differences can't all be attributed to culture…

You've likely heard how government leaders in Beijing have been encouraging citizens to buy gold and silver. This would be akin to seeing your local Congressman or President Obama appearing on TV and imploring you to buy some gold and silver. (Utah made gold legal tender, but it was mostly a symbolic move.)

Chinese radio and TV spots, along with newspaper ads, talk about "safeguarding your wealth" and putting "at least 5% of your savings" in precious metals. I haven't seen this here except from dealers on cable TV. Can you imagine Ben Bernanke appearing in a commercial during American Idol, encouraging you to buy gold Eagles?

No, what I hear from politicians about precious metals is nothing but the sound of crickets chirping, save Ron Paul. And the mainstream continues to claim gold is in a bubble. We've pointed it out before, but in case any of them are reading, there are two criteria for a bubble: first, a massive price increase, such as the gold price doubling in less than 7 weeks like it did in 1979-'80... which, of course, hasn't occurred in this bull market. (Yet.)

The second criterion is widespread participation on the part of the public. I don't hear celebrities and TV anchors bubbling on about the latest gold stocks. Most people I know outside Casey Research aren't talking about the great price they got on a silver Maple Leaf. Most investors I talk to say their friends, family, or co-workers aren't scrambling to snatch up gold Eagles. And the #1 reason we're not in a bubble is because Eva Longoria still hasn't asked me out on date – something she'd only do because I'm a gold analyst.

And with apologies to those of you who do know history, I think the Chinese have studied history a little better than many of us. The lessons are right in front of us, though I don't hear this kind of data very much on CNBC…

  • Morgan Stanley reports there is "no historical precedent" for an economy that exceeds a 250% debt-to-GDP ratio without experiencing some sort of financial crisis or high inflation. Total debt (public and private) in the US is 300%+ of GDP.
  • Detailed studies of government debt levels over the past 100 years show that debts have never been repaid (in original currency units) when they exceed 80% of GDP. US government debt is approaching 100% of GDP this year.
  • Peter Bernholz, a leading expert on hyperinflation, states emphatically that "hyperinflation is caused by government budget deficits." This year's US budget deficit will be about $1.3 trillion. It's expected to total $6 trillion during Obama's first four years in office.

What do we hear instead? That the country will drop into recession if current amounts of spending and outlay of benefits are reduced. I think it is quite the opposite; it will be worse if our leaders continue down this path of debt, deficit spending, and printing money.

What I'd love to see on CNBC is a spot with Doug Casey saying this: "Anyone who thinks they have any measure of financial security without owning any gold – especially in the post-2008 world – is either ignorant, naïve, foolish, or all three." I bet that'd get the airwaves buzzing.

It must seem strange to many Chinese that we continue to believe in our dollars, Treasuries, and bonds more than gold and silver. And it's not just China that would view our investing habits as peculiar. Indeed, as the above tables implies, our views on precious metals are in the minority.

My fear is that regardless of what form the fallout takes, many of my friends will be caught off guard. Probably many of yours, too. As the value of dollars continues to decay and inflation creeps closer and closer and then higher and higher, many investors will feel blindsided. Many Chinese citizens will not.

Given China's aggressive buying habits, my suspicion is that many of them will probably wonder why we didn't see what was happening all around us, why we didn't learn from history, and why we didn't better prepare.

 

Part of the reason why American dollars are losing value can be traced to Chinese actions as well: Realizing that the US government was not going to rein in its profligate spending, the Chinese have stopped investing in the US economy and are now dumping dollars. This, of course, simply adds to the US government's problems... but it provides ways for you to turn a tidy profit.

 

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Wed, 11/28/2012 - 22:17 | 3019209 Dealer
Dealer's picture

No risk of that.

 

Wed, 11/28/2012 - 22:27 | 3019229 dlmaniac
dlmaniac's picture

Chinese are PPT's biggest fans, especially on a day like today.

Thu, 11/29/2012 - 00:10 | 3019359 TwoShortPlanks
TwoShortPlanks's picture

Where's Australia? No-seriously, where the fuck is Australia?
Oh, I forgot, we don't need to worry, that's right, we're the 'Lucky Country', our roads are paved with the shit...Phew, what a relief...back to buying Audi's to drive kids to fucking school and watching top quality shows like 'Farmer Wants A New Gen-Y Whore For A Wife' and 'So You Think You Can Make A Fool Of Yourself'.

Ya-know, I went house hunting last weekend, and I can't tell the difference between the house price and the real estate agent's fucking mobile number.

This place is a fucking Bomb.

Get ready for www.AustralianBrideNeedsNewCountryCozThisOneIsFucked.com.au

Thu, 11/29/2012 - 04:14 | 3019660 CheapBastard
CheapBastard's picture

Prices in Australia are Uber Bubble my friend in Sydney tells me. His Mom didn't wan tto sell her house (the house she lived in for 30 years) but she said th eprices was too incedible. She sold for USD$2.8 million and moved to a rental and put half of her take into gold. She feels when house prices return to normal she may buy again.

Wed, 11/28/2012 - 22:43 | 3019263 CPL
CPL's picture

Ahh!

 

So India wins. 

Thu, 11/29/2012 - 08:16 | 3019868 LongSoupLine
LongSoupLine's picture

Tyler,

I believe a chart of tungsten imports to each those countries would put things into an even clearer perspective.

Wed, 11/28/2012 - 22:21 | 3019217 dbomb12
dbomb12's picture

"Americans are buying precious metals, no doubt. You'll see in a news item below that gold and silver ETF holdings just hit record levels. The US Mint believes that 2012 volumes will surpass those of 2011"

Since when are ETF,s considered holding gold and silver?? I will bet Gerald Celente would surely disagree with that after his encounter with MF global

Thu, 11/29/2012 - 08:50 | 3019920 lakecity55
lakecity55's picture

Do not expect the "news media" will report on any uptick in USA Citizenism PM acquisitions.

Wed, 11/28/2012 - 22:28 | 3019224 Spitzer
Spitzer's picture

Gerald Celente and Bill Flekinstien both got shafted by MF. Maybe they are practising what they preech on KWN now.

We have a long way to go if Gerald Celente is still playing on the COMEX. Either that or he is a phony

2 Bank of Nova Scotia locations sell bullion in Edmonton Canada. One is in little India, the other is downtown.

Wed, 11/28/2012 - 22:41 | 3019255 DoChenRollingBearing
DoChenRollingBearing's picture

DoChenRollingBearing is no Gerald Celente nor a Bill Fleckenstein (not even a FOFOA), but even a Bearing of small brain would know to buy physical gold only!

+ 1 Spitzer!

Thu, 11/29/2012 - 08:59 | 3019929 dbomb12
dbomb12's picture

I think he has learned a painful lesson

Wed, 11/28/2012 - 22:25 | 3019225 Chupacabra-322
Chupacabra-322's picture

Chinese wise man say, gold berry, berry good.  U.S. dollar, berry, berry bad. 

Wed, 11/28/2012 - 22:27 | 3019228 A Nanny Moose
A Nanny Moose's picture

We know how the US views the copper and nickel market. Hoard those pennies and nickels.

http://goldsilver.com/news/bid-farewell-to-pennies-and-nickels/

Gresham....it's the law.

Thu, 11/29/2012 - 04:55 | 3019687 MeelionDollerBogus
MeelionDollerBogus's picture

"Most Americans are more than ready for this overdue phase-out, viewing the millions wasted on coin production as foolishness in these tumultuous economic times. As federal budgets grow tighter and tighter, this is the only logical thing to do, but it will have some unintended consequnences on the average consumer..."

Indeed, foolishness. The sensible solution is that we be allowed to take the cost on ourselves & mint OUR OWN coins.

Wed, 11/28/2012 - 22:28 | 3019231 Yen Cross
Yen Cross's picture

 PBoC read on the markets is an obscure question.  How do you spend surplus capital on projects that were already allocated into budget?

    China will be lucky to achive 6.7% GDP next year. Tyler is all over this bull shit!  Smart Chinese investors are already diversifing over seas.

Wed, 11/28/2012 - 22:32 | 3019243 Spitzer
Spitzer's picture

Italians are buying real estate in Florida because they don't trust the local market. Americans are buying in HK because they don't trust their markets and Chinese are buying everywhere because they don't trust theirs either.

Grass is always greener...

here's an idea... Buy gold ?

Wed, 11/28/2012 - 22:51 | 3019277 Pool Shark
Pool Shark's picture

 

 

Confucius say: Grass may be greener on other side of fence,

but, It still must be mown...

Wed, 11/28/2012 - 22:54 | 3019289 Yen Cross
Yen Cross's picture

I agree with both of you... I'm just stating facts.

Thu, 11/29/2012 - 01:46 | 3019481 Bear
Bear's picture

But Gold is such a yellow asset

Thu, 11/29/2012 - 06:46 | 3019773 Snidley Whipsnae
Snidley Whipsnae's picture

"here's an idea... Buy gold ?"

Why not? Any purchase of PMs is, in effect, a short of all fiat.

If one believes that central banks will continue to hold interest rates negative by printing currencies and buying soverign bonds and one wants to take advantage of this action then what safer way than the purchase of PMs? Even if the absolute worst happens physical PMs never go to zero value but the same cannot be said of any paper asset.

The Fed (yellen iirc) recently announced that they will continue on present course until mid 2015 or longer.

Certainly there will continue to be paper PM take downs around expiry... and paper PM recoveries a few days later. So what? Unless one is into trading paper PMs this has no effect on a long term investment stategy with physical PMs.

The trend is your friend and the trend, caused by central bank actions and demand in the East, is up.

If PMs make a sudden parabolic move upward it will be time to reconsider the portfolio... Same if the central banks decide to bite the bullet and increase interest rates and reduce currency printing; ie, strengthen the fiats.

This is NOT rocket science. 

Wed, 11/28/2012 - 23:57 | 3019367 IllusionOfChoice
IllusionOfChoice's picture

Where are they going to get better yields? I thought they were just stashing their gains away from the government's long arm.

I'm not arguing about diverisfying offshore, just the why. The gold is always greener...

Wed, 11/28/2012 - 22:36 | 3019234 duo
duo's picture

when you can buy gold for 3% down and write off the interest.

When a government agency is created to help you buy gold on credit.

When HGTV has shows talking about gold ownership, and the stock market hangs on monthly gold sales numbers...

When they tell you to buy gold because they aren't making any more.

Then gold is in a bubble.

Thu, 11/29/2012 - 07:42 | 3019811 Seer
Seer's picture

"When HGTV has shows talking about gold ownership"

When HGTV has a show that tells you how to polish that gold and then flip it, THEN we can say that the cords were cut on the parachute.

Thu, 11/29/2012 - 08:31 | 3019891 ParkAveFlasher
ParkAveFlasher's picture

When the first two words out of Suzy Orman's lips are "gold, bitchez!", and the crowd goes wild, THEN you're in a bubble.

Thu, 11/29/2012 - 11:27 | 3020437 ATM
ATM's picture

Suzy Orman - the financial advisor to people without finances. I hate that lesbian cunt.

Thu, 11/29/2012 - 11:08 | 3020378 duo
duo's picture

that -1 must have been from a real estate agent

Wed, 11/28/2012 - 22:30 | 3019235 billwilson
billwilson's picture

For Chinese gold is a nice place to put wealth. Hard to track, easy to carry, will not go bankrupt ... not a bad way to have some "running away'' money. Try that with real estate or a bond or stocks. 

Gold is passed all over the place at weddings and especially engagements. When two folks get engaged .. gold gets swapped around as gifts. Then once kids are born gold is often given as a gift ... a nice way to save for the kids education. The $2000 bar I was given on our child's birth is now worth over $10,000 as he enters uni.

 

Thu, 11/29/2012 - 07:50 | 3019822 Seer
Seer's picture

"as he enters uni."

WAIT!

You're not really thinking about throw good after the bad?

The SAME people that have everyone buying up crap (and, of course, not physical PMs) want to get your wealth from you by luring you into spending it on an "education" that allows you to be in their employ?

Wed, 11/28/2012 - 22:42 | 3019254 DoChenRollingBearing
DoChenRollingBearing's picture

The Central Bank of DoChenRollingBearing has been an accumulator of gold for decades, but the Bank did not start buying in larger quantities until about 2002.  Further purchases may be expected.

Very roughly, comparing the Republic of DoChenRollingBearing and its oz of gold per unit of GDP (a graph in the article) puts our Republic in comparatively good shape compared to the countries shown.

Bitchez.

Wed, 11/28/2012 - 22:51 | 3019281 fuu
fuu's picture

Do you have an embassy?

Wed, 11/28/2012 - 22:57 | 3019294 DoChenRollingBearing
DoChenRollingBearing's picture

Av. Benavides 5495, Surco, Lima, Peru.

Bring money.

Wed, 11/28/2012 - 22:43 | 3019259 Cognitive Dissonance
Cognitive Dissonance's picture

Just goes to show how brainwashed we Americans are with regard to paper fiat. That's the scrubbing power of 40 years of the Petro Dollar.

There are gonna be lots of unhappy campers here in the USA when the almighty dollar starts to go south.

Wed, 11/28/2012 - 22:52 | 3019282 eigenvalue
eigenvalue's picture

In fact, if you have some on-the-ground source, you will know that "apartments" is a much much hotter topic than gold in China. When people talk about somebody who is rich, they say "he has XXX apartments." instead of "he has XXX ounces of gold". When Japan was experiencing its housing bubble, the Japanese gold demand was also high. But now Japan is a large seller of gold. 

Thu, 11/29/2012 - 02:39 | 3019558 TwoShortPlanks
TwoShortPlanks's picture

He has XXX apartments...LOL...yeah, I've heard that shit before...didn't turn out so well if my memory serves me well.
Maybe second time rucky?!

Wed, 11/28/2012 - 22:58 | 3019286 CPL
CPL's picture

No, Mexico hasn't accepted USD for a while starting in 2009.  I think everyone down south got the hint when the US government started doing one of Mexico's cultural and historical processes when a dictator gets in.  So your best way to protect yourself, change the laws limiting bill size.  Credit, Small bills and change only.  Travelers cheques, I've heard are hit and miss now.

http://www.bloomberg.com/news/2010-11-09/money-laundering-crackdown-cuts...

 

Los Narco's deal in gold and oil, so it sure as well wasn't the drug trade the law was aimed at limiting.

http://www.google.com/hostednews/afp/article/ALeqM5j-zgdbPaM5eqvSlxGqok3...

 

Wed, 11/28/2012 - 22:54 | 3019288 oddjob
oddjob's picture

Cue Mark Dice trying to sell a Gold Maple for $25, no takers.

http://www.youtube.com/watch?v=ndshbH3qZ6Y

Wed, 11/28/2012 - 23:10 | 3019314 Cognitive Dissonance
Cognitive Dissonance's picture

Didn't Mark just do a drive-by bullhorning of some hapless Thanksgiving Day people lined up to shop on turkey day evening?

Wed, 11/28/2012 - 23:19 | 3019324 oddjob
oddjob's picture

"I don't know if they heard me so I am going to take a swing back around"

LMAO.

Wed, 11/28/2012 - 22:56 | 3019292 Pool Shark
Pool Shark's picture

 

 

"There are gonna be lots of unhappy campers here in the USA when the almighty dollar starts to go south."

Too late:

http://www.comparegoldandsilverprices.com/wp-content/uploads/2012/01/dollar-devaluation1.png

Thu, 11/29/2012 - 07:52 | 3019830 Seer
Seer's picture

Obviously the notion of being a "paperless society" has been an abject failure.

Wed, 11/28/2012 - 22:48 | 3019272 hairball48
hairball48's picture

"My fear is that regardless of what form the fallout takes, many of my friends will be caught off guard. Probably many of yours, too. "

I talk to friends and family alike; many of whom are well educated. I send them emails with articles like this. And to my eternal frustration, 99% simply don't want to "deal with it". They say shit like, "Tell me when that crackup boom comes. I'll deal with it then."

The sheeple have no clue. A major reason imo is that the sheeple do not "get" the difference between real money(gold) and fiat money. They're ignorant. They're all Keynesians like Nixon :) whther they know it or not. They're going to learn a very harsh lesson when the bond market/US$ bubble collapses.

Gold bitchez :) Gold!

Wed, 11/28/2012 - 23:11 | 3019316 dogbreath
dogbreath's picture

well educated you say, I suppose they have pieces of paper to prove that

Wed, 11/28/2012 - 23:57 | 3019365 Snidley Whipsnae
Snidley Whipsnae's picture

hairball...

No sense wasting your time trying to sway people. After the first attempt let it go. You have tried and to persist will only piss them off and you might make enemies out of non-enemies.

In addition... What happens when they lose their asses with paper? They are aware that you have physical and they are going to resent it. Hell, it might be a good idea to tell them you have lost your PMs in a boating misshap and are now into etfs. Otherwise, if the gov offers rewards for ratting on PM phys owners you will definitely be ratted on. Luckily, I lost my PMs in a boating accident and need not worry. Good luck.

 

Thu, 11/29/2012 - 00:05 | 3019372 DoChenRollingBearing
DoChenRollingBearing's picture

Wise words Snidley, + 1

Thu, 11/29/2012 - 00:05 | 3019378 IllusionOfChoice
IllusionOfChoice's picture

FWIW after talking my parents through the situation for a year, they finally dipped a toe in. After seeing a 10% gain, they doubled their stake without any prompting from me. 

Now to get them into physical... Baby steps required I guess.

Tue, 12/11/2012 - 06:15 | 3051351 e-recep
e-recep's picture

hell, i lost my bullions in a zeppelin accident.

Thu, 11/29/2012 - 01:24 | 3019458 dinastar2
dinastar2's picture

When the T bonds / US $ will crash the US govt will prohibit the holding and exchanging of physical gold on its territory for the very simple reason that the Govt will NEED your gold like a junkie will NEED its heroin shoot.So your gold will be outlawed , and cash banknotes too.All transactions will be in bank wires and plastic credit card.So the Govt will be able to register any movt.in your bank account coming from stashed away unknown ressources like gold. The elimination of cash banknotes as a normal mean of payement is well under way in Europe .In Italy the govt prohibits the use of cash above one thousand euros.Then will come the prohibition of gold.When push comes to shove there is no more individual rights, and democracy is a parody.Listen well to the heavy hitters who propose Singapore as the new model of authoritarian regime.If you want to hold gold you'll need to hold a gun too and stay on the run. 

Thu, 11/29/2012 - 07:09 | 3019784 Snidley Whipsnae
Snidley Whipsnae's picture

"When the T bonds / US $ will crash the US govt will prohibit the holding and exchanging of physical gold on its territory"

There is NO GOVERNMENT TERRITORY... Only territory belonging to the citizens of America.

"the Govt will NEED your gold like a junkie will NEED its heroin shoot.So your gold will be outlawed"

Simply because an entity NEEDS something does not mean that they will GET it. Perhaps they will get a portion of it but not all. Besides, there is not enough gold in the hands of American individuals to bail out the US Gov debt without a huge upward revaluation of gold... which is the last thing that central banks/govs want to happen.

"All transactions will be in bank wires and plastic credit card"

This would cause the underground economy to increase by multiples of it's current size... which is already considerable when considering all the swap meets and farmers mkts in current operation. An example: Near me there is an every Wed swap meet at a county fair grounds that has over 3,000 vendors and tens of thousands of attendees/buyers... not to mention all the smaller swap meets in this area. NONE of the vendors accept credit cards and there are many ATMs on site.

"If you want to hold gold you'll need to hold a gun too and stay on the run."

Paranoia will destroy ya... My chances of being hurt/killed are far greater from an idiot talking on a cell phone while driving or the idiot that drives 90 mph on bald tires and takes out multiple vehicles when a tire blows out. I suspect that tptb will attempt to outlaw guns before they attempt to outlaw gold. It only makes sense from their perspective although I am against both actions.

 

 

 

Thu, 11/29/2012 - 07:47 | 3019818 Tango in the Blight
Tango in the Blight's picture

Next year all cash transactions over 50 euros are outlawed in Italy!

http://www.silverdoctors.com/italy-to-ban-cash-transactions-over-e50-in-...

 

Thu, 11/29/2012 - 08:42 | 3019911 lakecity55
lakecity55's picture

Likely.

But, there will be a black market.

I know lots of Au escaped Premier Roosevelt's Decree in '33.

Over the short term you would have to stash it. Then, you could use it.

Then, there is Ag. Unless O'Mugabe wants more silverware in the Muslim House, it may be safe.

Thu, 11/29/2012 - 07:56 | 3019837 Seer
Seer's picture

"Tell me when that crackup boom comes. I'll deal with it then."

Yeah, pull the plug on ALL early warning systems, all weather forecasting systems.  No need, we'll deal with things when they happen...

I've always loved the phrase: A lack of planning on your part does not constitute an emergency on mine.

When those same people are sinking and ask for help just look at them and say that you'll deal with it when it's a problem for you/yourself.

Wed, 11/28/2012 - 22:52 | 3019275 hairball48
hairball48's picture

Double posted -1 for me :(

I would only add that this time the coming bond market/US$ collapse will happen with little warning....and of course not everyone will be able to get out before they lose their ass.

Wed, 11/28/2012 - 23:24 | 3019331 Bear
Bear's picture

Beware China ... with the changeover in leadership, there may be a move to curb the oligarchs, reign in hoarding, and clamp on currency controls and curtail public ownership of gold 

Thu, 11/29/2012 - 01:57 | 3019503 Venerability
Venerability's picture

With all due respect, that's ridiculous.

The Chinese have, in fact, been encouraging their citizens to buy Gold.

And note that the WGC's presence in China is as strong as in any region of the world.

(No wonder your avatar is so cute. You're a teddy bear!) 

Thu, 11/29/2012 - 20:59 | 3022437 Tompooz
Tompooz's picture

"The Chinese have, in fact, been encouraging their citizens to buy Gold."

..oft repeated myth, if you mean that officials have done this.

Provide source please!

Wed, 11/28/2012 - 23:41 | 3019345 KennyW
KennyW's picture

The Chinese people have been through the cycle of fiat debasement many times before. The Chinese invented paper money and know that whenever you have crappy government the currency goes down the toilet. They've been there and done that over and over. They know that whenever regime change occurs it's best to have hard assets while waiting for the fiat cycle to reset. Most Americans having never seen a fiat currency reset won't know what hit them.

Wed, 11/28/2012 - 23:42 | 3019348 mt paul
mt paul's picture

the real question should be

 

do they have 

any twinkies...

Wed, 11/28/2012 - 23:48 | 3019358 Snidley Whipsnae
Snidley Whipsnae's picture

The Chinese invented paper money long ago, so I have read. So, they have had many currencies fail in their long history and it's natural that they have more faith in PMs than paper.

The Spanish silver dollar circulated in China just prior to the Japanese invasion. It was also in circulation in China prior to the US Revolutionary war and the same coin was common in America at that time... The Mex circulated far longer than any fiat. Many Chinese families still have Spanish silver dollars (commonly known as Mex) in their 'savings'. I have a Mex minted in Peru in 1793 and it's still in good condition with test stamps all over it. One of the test stamps is the shape of a swastika... I wish this coin could talk for it could tell some great tales.

The US is a very new country compared to China and have not had the experiencies of many fiat/paper currency failures/devaluations/revaluations.

The learning curve for Americans will be steep.

Thu, 11/29/2012 - 00:06 | 3019380 Yen Cross
Yen Cross's picture

The Chinese invented paper money long ago , and gun powder!  The more you write, the more I like! :-)

  I was wrong in some ways/ I apologise.

Thu, 11/29/2012 - 00:10 | 3019383 laomei
laomei's picture

The banks are pretty cool with gold/silver/platinum to be honest.  The paper gold is backed by actual physical stock and at any time I can transfer the paper to physical and take delivery at any branch once the order goes through.  The spreads are not as tight as the international markets, so more profits to the banks.  But, there's no tax on the gains and it's actually backed in physical form.  VAT is only for jewelry and whatever... bullion products are tax free and can be cashed in at the gold markets at pretty much any time if you want.

 

How do I know this? Because I've been playing with it for the past few years and it's been very rewarding.  Paper is useful as long as it's trustworthy and no taxes on the gains means I can buy low, sell high, rebuy on the dips and end up with more physical than I started with when I decide to lock in my gains and take a delivery.  If you are using the right systems, you can actually watch the orders come in in real-time.  Furthermore, we trade in grams, not ounces.  Which makes it vastly more accessible to everyone, and also far easier to snap up more when the time is right.  While their system does not provide for leveraging, it detracts from short term positions and most everyone holds for a long long time.  All in all, it's pretty nice.  Also, the banks that offer the trading.... well, the only ones that matter are government-owned.  No gold scandal will ever happen here because it would be entirely blamed on the government as fraud and theft.  It's far cheaper and safer to maintain physical stocks.

Thu, 11/29/2012 - 06:37 | 3019768 Amagnonx
Amagnonx's picture

The spread on 1oz for me is about $6.50 - and no tax of any kind - spread is 50c per 1oz of silver, again, no taxes.

Thu, 11/29/2012 - 07:52 | 3019828 Tango in the Blight
Tango in the Blight's picture

Here in the Netherlands there is no VAT for gold bullion and coins but silver bullion has VAT added. Silver coins which are legal tender (ie the Maple Leaf, Panda, etc) are exempt. I wonder why silver is treated differently to gold.

Thu, 11/29/2012 - 07:58 | 3019840 Ghordius
Ghordius's picture

history

for us continental europeans gold is money, silver is not so anymore (except when it's an official legal tender coin)

to say it differently: we never had a Silverite movement like in the US ( the "don't nail me on a cross of gold" folks)

compare it with how the British Empire weaned out India from silver

Thu, 11/29/2012 - 09:29 | 3019867 TGR
TGR's picture

Laomai, you must live in a different China than me. Or are you in Hong Kong?

Yes, there is no VAT on gold or capital gains tax on gold in Hong Kong, but mainland China is a completely different matter.

First, there is 17% VAT on all bullion in China - on jewelry, bars, coins etc. See the keynote paper from the 2011 LBMA precious metals conference in China from Deloitte at http://www.lbma.org.uk/assets/LBMABMF2011_S2_02Chin_en.pdf  17% VAT applies to all bullion, the only exception is for some people taking delivery from the gold exchange.

If you are still not convinced, call ICBC - they are the biggest of China's banks and the biggest of distributors. They will confirm 100% if you buy gold from them, VAT tax price is included: i.e a 17% mark-up on top of spot + fabrication cost. Anyone can call, from overseas too. They have an English option (wait a minute before they get through the various dialect options in Chinese) and  select speak to a representative and you won't have to wait long, nor do you have to be a customer.

Second, the notion of no capital gains tax on precious metals in China is dubious at best. China's tax system typically does not distinguish between income and capital gains, so all capital gains are accounted for under the progessive income tax framework. Gains on bullion are accounted as income, and you need to declare it on your tax filing, otherwise it could be considered evasion. The bank will not withhold capital gains tax, it is up to you to declare it.

Thu, 11/29/2012 - 12:24 | 3020658 Ghordius
Ghordius's picture

+1 thx for the facts

Thu, 11/29/2012 - 16:49 | 3021802 laomei
laomei's picture

It's "included" in the price, as in it's 0%.  You can go to the gold market downtown and get the same result for buying bullion.  They take a spread when you sell it back to them if it has to be assayed... if you bought it from them in the first place there's basically no fee.  Bullion purchases are tax free.  The difference is what form the gold is in.  A lump of it? Nadda.  Coins, jewelry, whatever... that demands taxes.

 

As far as capital gains and taxes... not applicable for individuals at all.  Works the same as for housing and basically everything else.  If I buy an apartment for 50w and sell it 5 years later for 300w.  That 250w in profit is all mine, no taxes unless I did it using a company.

Fri, 11/30/2012 - 00:32 | 3022372 TGR
TGR's picture

Wow. Now I know you are just speaking out your behind.

And no need to down vote me for stating facts

Call ICBC now, go on. You will be proven wrong. And read that PDF.

And I know this because I have bought gold here, once, and only once (I took the hit because it was during the 2008 early 09 dip in spot): and it was only once, because of the 17% VAT charged by the state bank selling it. I buy overseas. There has been no repeal of the 17% VAT on bullion in China since.

As I said, there is no "capital gains" as a direct entry on your tax filing as an individual, but capital gains MUST be included and filed under "other income", and it is up to you to include it. Capital gains is taxed generally at 20% for individuals in China, and on property it can be up to 60% for INDIVIDUALS. China's tax filing works on an honor system. You are evading tax at your own peril.

And there are plenty of paper metals schemes in the banks in China where you can get leverage, so you're wrong on that count too.

I was willing to give you the benefit of the doubt that maybe you were just unaware that bullion has a 17% VAT, and capital gains are taxed in China, but by insisting on the contrary, you are just making a mockery of reality, and misguiding anyone who actually does have an interest in gold, either buying or trading, in China.

But go on, get on the phone now to ICBC and actually ask please. You clearly haven't bought any physical in China. Sure, when you buy paper you don't pay 17% VAT, and that is clearly the only thing you have done here. Try cashing it in though for physical, there is at minimum a 17% markup on the spot value of your paper. Why? Because there is 17% VAT on bullion in China. Period.

 

Thu, 11/29/2012 - 00:24 | 3019387 smart girl
smart girl's picture

Will Gold will go down with other assets in relation to the dollar in deflationary crash? Estimate levels of U.S. Debt: Government Debt: 13.7 trillion, U.S. Household debt: 12.9 Trillion, Financial Sector Debt: 13.7 Trillion, Non-Financial Corporate Debt: 11.9 Trillion. Will the dollar be sought to pay off those debts?

Chart of debt:

http://www.spdrsmobile.com/content/ssga-global-credit-market-outlook-jul...

In addition, the dollar is used in so many other countries still as the reserve currency, even though this is  changing. Is is possible peripheral currencies may devalue first for a limited time? I guess it's the inflation/deflation debate still not satisfactorily understood by me. If you have any good answers, please post.

 

 

Thu, 11/29/2012 - 04:41 | 3019677 MeelionDollerBogus
MeelionDollerBogus's picture

The meta-answer is in Currency Wars by Jim Rickards. The real answer can only be divined ahead of time by monitoring what is purchased with currency - goods or other currency, and which goods, essentials like energy & land, or food & medicine, or more abstract things like wine, art, iPods, etc., which clearly are NOT a store of value but may serve a temporary trading purpose.

Thu, 11/29/2012 - 06:28 | 3019761 Amagnonx
Amagnonx's picture

You and I have the same questions - I haven't been able to resolve a decent answer to this one either.  I keep hoping we will see some good analysis from someone who can bring some calrity to this.  Stay tuned I guess.

 

My feeling is that gold will initially fall if there are defaults, as the larger circle gets hit with demands of repayment to cover losses - as the default rate increases (soveriegn defaults) gold will bounce up.

 

Of course, the defaults are unilkely to materialize in this fashion - the plan seems to be unlimited, unpayable sovereign debt in perpetuity - in this case, there will be total economic stagnation as more of the economy gets funnelled into debt repayment - it seems likely that inflation will have to be part of this stagnation, as different soveriegns try to manage varying levels of debt by printing.  This should be good for gold in the medium term - this scenario may not lead to collapse, but rather to consolidation.

Thu, 11/29/2012 - 08:27 | 3019887 Snidley Whipsnae
Snidley Whipsnae's picture

There is an old saying and I have heard Rickards use it... 'during deflation cash is king'.

This does not mean that gold will not retain it's purchasing power even if it's dollar denominated price falls. Cause the dollar will be rising in purchasing power during deflation.

Gold = store of value over the long term.

Dollar = an unknown over the long term.

Thu, 11/29/2012 - 00:30 | 3019393 floydian slip
floydian slip's picture

Joy to the bitchez in the deep blue sea!

Joy to you and me!

Thu, 11/29/2012 - 01:30 | 3019462 resurger
resurger's picture

+5

Thu, 11/29/2012 - 01:44 | 3019475 The Duke of New...
The Duke of New York A No.1's picture

I'm Long NY FED Tungsten... the Chinese can have the real stuff.

Thu, 11/29/2012 - 01:44 | 3019477 SoundMoney45
SoundMoney45's picture

"It's widely believed that the majority of the gold flowing into Hong Kong ends up in China, so its total is probably close to double what the chart reflects."

China's GDP is not equal to Hong Kong's GDP, thus the bars are not additive.

Thu, 11/29/2012 - 03:09 | 3019579 Lord Of Finance
Lord Of Finance's picture

Most Asains understand the lessons of economic history. Most especially India and China. 1980 will repeat itself. We can not pinpoint exactly when with so much manipulation of economic data and the feds inflation metric lagging behind the real rate of inflation, but we know that policy makers never learn and are destined to repeat the mistakes of the past.

    To the imbecile policy makers; when interests do rise, your bonds will be dumped and buyers nowhere to be found-( I know the fed will buy, but at some point they WILL have to address the inflation these purchases will cause) , and your stock market will be liquidated. Where will the people go to hide? Look to the east you crooked dipshits. India and China are telegraphing the move EVERYONE (including the shoeshine boy) will soon make with whatever is left with their devalued dollars.

It will be 1979/1980 all over again. The new question that arises for me is; how will we buy our way out of the shit mess this time, because unlike 1980, we do not have record trade surpluses, but record trade deficits, and lastly how will we pay back when we no longer "owe it to ourselves?". Well, the ones we owe the most know both those answers, and the graph at the header proves it.

 

Thu, 11/29/2012 - 03:24 | 3019601 Wardley
Wardley's picture

Americans got the Indiana Jones movie to educate them the importance of gold already

Thu, 11/29/2012 - 04:16 | 3019663 No Euros please...
No Euros please we're British's picture

Ahh, Indiana Jones. A touch of irony there, in the film didn't the Germans steal the US gold?

Thu, 11/29/2012 - 10:02 | 3020108 Big Corked Boots
Big Corked Boots's picture

Yes, but at the very end, the US Government confiscated it...

Thu, 11/29/2012 - 04:38 | 3019674 MeelionDollerBogus
MeelionDollerBogus's picture

Bah.

It's all the fault of Chinese Libertarian Boat Accidentism.

Thu, 11/29/2012 - 05:52 | 3019734 FunkyOldGeezer
FunkyOldGeezer's picture

Here's a thought.

US Gold Bugs wouldn't know (first hand) when Gold is in a bubble, precisely because they'd have no knowledge of world ownership levels. Therefore the claim that it is not widely owned is negated as a yardstick when measuring 'bubble' territory?

It's a shame that westerners by and large, have to rely on mostly US- centric goldbugs as their guiding lights?

 

Thu, 11/29/2012 - 06:30 | 3019762 Amagnonx
Amagnonx's picture

Good thought - faily valid, but I live on one of the nations on the top of the chart - not seeing any hysteria here.

Thu, 11/29/2012 - 06:30 | 3019763 Bokkenrijder
Bokkenrijder's picture

But in all fairness, don;t you have to add the Chinese and Hong Kong numbers together? One country, two systems and all?

Thu, 11/29/2012 - 07:34 | 3019806 Oldrepublic
Oldrepublic's picture

To paraphrase Ambrose Bierce:

War is God's way of teaching Americans geography.

The coming crash will teach Americans economics

 

Thu, 11/29/2012 - 08:28 | 3019888 Papasmurf
Papasmurf's picture

"The US Mint believes that 2012 volumes will surpass those of 2011."

 

Total US Mint gold sales in 2012 to date are 660,500 oz compared with 1,000,000 oz sold in 2011.

source:  http://www.usmint.gov/mint_programs/american_eagles/?action=sales&year=2011

http://www.usmint.gov/mint_programs/american_eagles/?action=sales&year=2012

 

Thu, 11/29/2012 - 09:09 | 3019952 Volaille de Bresse
Volaille de Bresse's picture

"To paraphrase Ambrose Bierce:


War is God's way of teaching Americans geography.

The coming crash will teach Americans economics"

 

The finest thing I've read on ZH in weeks... Bravo!

Thu, 11/29/2012 - 09:29 | 3019982 Volaille de Bresse
Volaille de Bresse's picture

Excellent article! 

We Westerners should stick our heads of our asses and take our collective cue from the so-called "third world". 

Thu, 11/29/2012 - 13:24 | 3020965 mark mchugh
mark mchugh's picture

Nice work, Jeff!

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