Bank Of China Close To Responding To Goldbug Prayers On Friday... But Not Yet

Tyler Durden's picture

As we already reported yesterday, Chinese trade data for May came out about as abysmally as we predicted it would one month ago.  The reason: the Chinese Customs Administration was humiliated at the epic discrepancy in data between Chinese Hong Kong exports and Hong Kong imports from China, with the delta resulting from that other variable we discussed two weeks ago: the Chinese Copper Financing Deals which serve(d) as an interest rate arbitrage conduit. The outcome was a prompt "fix" by SAFE leading to a "normalization" in trade data, which plunged and missed almost all expectations.

It only got worse as the weekend progressed. SocGen recaps the entirety of this weekend's data dump from Beijing:

"The entire set of weekend releases from China was disappointing. Trade growth collapsed in May, revealing the actual picture of subdued external demand. CPI inflation was nowhere to be seen, while PPI deflation intensified. Activity growth largely disappointed as well on soft domestic demand and supported our call for further GDP growth deceleration in Q2. We expect policymakers to provide modestly more policy easing, including interbank liquidity injection and a stop of fast yuan appreciation."


There are some problems with the above, the most obvious one being so obvious that we should hardly mention it: if China was indeed manipulating its trade data, as is now widely accepted (not like there wa any doubt but like with the NSA, an official admission is critical to make the conspiracy theory to fact conversion complete), it is obviously manipulating everything else too. Such as inflation data.

What we do know about China is that the government is desperate to mask the unprecedented influx of hot central-bank created credit-money, which for now at least is being parked mostly in the local real estate market leading to 12 consecutive months of house prices increases.

What we also know is that the PBOC in the past has never been shy about lowering the RRR rate in times when liquidity was truly perceived to be insufficient without an offsetting opportunity cost, nor was it timid to cut rates when deflation was suddenly becoming an issue. Such as now if one believes the conventional narrative and the sellside. Of course, China is doing neither because contrary to what is being (mis)reported, inflation - not from an overheating economy but from hot money flowing courtesy of the Fed and the BOJ - has been and is still a valid concern for the Chinese Politburo.

However there is only so much lack of liquidity that the country's banking system, deprived of its lifeblood and hooked to waves of de-novo created credit money like any other developed world liquidity junkie, can take.

Which is why as we also reported citing Bloomberg, "a lack of liquidity in China’s banking system may threaten some companies’ ability to roll over debt, deteriorating banks’ non-performing loans and increasing risks of hard-landing in economy." Indeed, there was speculation on Friday that the PBOC may be forced to inject liquidity via open market operations to offset surging money-market rates.

The catalyst, as Market News reported, was that China Everbright Bank failed to repay 6b yuan ($977m) borrowed from Industrial Bank on time yesterday because of tight liquidity, leading to “chain effect” borrowing in market overnight.

There was more: "Rumours that several mid-sized banks had defaulted on interbank loans added an element of fear to an acute liquidity shortage related to a coming national holiday and a slowdown in capital inflows. The rumours couldn't be verified."

What happened was an immediate lock up in the overnight loan rate which exploded to as high as 15%. Elsewhere, 7 Day SHIBOR as shown below, has doubled from 3% to 6% in a few days as the PBOC's stubborn refusal to join in the liquidity party may soon cost the banking sector, which suddenly can't roll overnight liquidity, dearly:

All of the above we have previously touched upon. Which brings us to the topic of this article.

Goldbugs the world over may not know it, but the one catalyst they are all waiting for, is for the PBOC to throw in the towel to Bernanke's and Kuroda's liquidity tsunami and join in the global reflation effort. Alas, those hoping the Chinese central bank would do just this on Friday were disappointed. Moments ago the 21st Century Business Herald, via MNI, reported that the People's Bank of China "decided to shelve plans to inject short-term liquidity into the market late Friday because of concerns it would be sending the wrong signal in light of the government's ongoing commitment to its "prudent" monetary policy stance. Rumors hit the market mid-afternoon about an injection in the region of CNY150 bln via the PBOC's rarely-used short-term liquidity operation (SLO) tool.

That injection appeared designed to bring down money market rates, which have surged to multi-year highs due to a liquidity shortage blamed on short-term factors such as reserve payments and holiday demand but PBOC mismanagement as well. Newspaper cited research at the weekend from China International Capital Corp saying the PBOC doesn't want to ease policy with M2 above the full-year 13% target.

In other words, for now at least the PBOC refuses to openly engage in liquidity provision: a step which one etaken, should bring back memories of 2011 and the great inflationary scare that sent ripples through China, leading to rumors of a Chinese Spring, open violence in major cities, and, of course, gold exploding from $1300 to $1900 in a few months.

But how much longer can it avoid the inevitable: what happens when overnight loan yields soar to 20% or 30% or more, and when the repo and SHIBOR markets lock up and no overnight unsecured wholesale funding is available?

Because when China finally does join what is already an historic liquidity tsunami, courtesy of the Fed, the BOJ, and the BOE in one month, then deflation will be the last thing the world will have to worry about. In the meantime, we welcome every chance to dollar cost average lower on physical hard assets, the same hard assets that none other than 1 billion concerned Chinese will direct their attention to when inflation makes it long overdue comeback to the world's most populous country.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Seasmoke's picture

Stack until its taller than Yao Ming.

Pinto Currency's picture


Check "physical delivery from vault" (physical gold) on the Shanghai Gold Exchange:

boogerbently's picture

"a step which one etaken, should bring back memories of 2011 and the great inflationary scare that sent ripples through China."

etaken !?

Freudian (Keynesian) slip ?

Supernova Born's picture

With gold, it's personal. It will be held back with everything the Fed has got.

spine001's picture

Chaos theory at play, nobody will know what is the loop that gets activated when it all abandons the current attractor, or current point of equilibrium in the world financial system, but abandon it will as the continuouslly increasing QE increases the gain of those unknown loops and makes the feedbck positive...

q99x2's picture

They don't take things very seriously in China. They even had one of their elites wasting his time talking to Obama on Friday.

Ya. Obama had just convinced his Chinese guest that the US second amendment problem was all taken care of and that he had confiscated most of the guns. Just then the secret service interrupted them that a lunatic armed with 1,300 rounds of ammo was running down Pico blvd 2 miles away from where they were and might be working his way toward them. The meeting was cut short after the Chinese realized once again that a visit to Russia might be money better spent.

Nothing gets done quick in China.

knukles's picture

I heard that was right after Obie threatened to embarass Whoie by releasing how many times he's watched the Charley Chan movies on Netflix.

fonzannoon's picture

These guys are losing control all over the world and some 29 year old kid with a lot to lose just ran up and kicked them in the balls.


Dr. Engali's picture

The freaking Nikkei is up 3% on revised numbers. All is well with the world. Go back to bed.

fonzannoon's picture

I feel like a million bucks tonight thanks to this kid doc. to hell with the nikkei. besides I expect any big rallies in the nikkei to come at the expense of the JGB's.

It's getting harder and harder to be a sheep these days. No matter how far you try to stick your head in the sand you can still feel the cattle prod hitting your ass. 

Now it's official. everyone, in every conversation, every water cooler, every coctail party, will have to take a side. no more ignorance. 

Dr. Engali's picture

Let's hope that is the case. The empire has been very efficient at lulling the sheep back to sleep.

Here's Bill Maher defending the NSA

fonzannoon's picture

Bill Mahar, Jon Stewart etc.

all the Libs who claim to tell is straight will be reading from the same script as many of the conservatives.

Ekm said it best, if this does not convince you there is one party, nothing will.


Pure Evil's picture

So this is how liberty the sound of thunderous applause.

oddjob's picture

The same ekm that said 9/11 was just another building collapse?

fonzannoon's picture

I can't speak to that. I have no idea what his take was on 9/11.

It sure as hell was not.

boogerbently's picture

I love to see them back all the facist crap to try to stop the bleeding.

Fail2Deliver's picture

He is my hero but I fear he will soon be suicided.

zorba THE GREEK's picture

I been stacking for over 10 years, so When it finally breaks out, I am going to buy a Greek Island

and spend my golden years drinking ouzo and watching the sun set over the Mediteranian.

Tinky's picture

It's safer to live near bodies of water that you can spell correctly.

Seeking Aphids's picture

Greeek island ok but do yourself a favour and bring in some cases of good Bordeaux.......nothing against ouzo.....used it as paint thinner once.....on second thoughts, lose the Greek island (too many rightfully outraged Greeks in the might not be uber popular there) the James Bond Island near can get the wine in Bangkok half price.......

zorba THE GREEK's picture

SA I speak Greek, So I will blend in.

Urban Redneck's picture

The combination of Wine, Thailand and "half price" confuses me, beer & liquor- OK, but wine... in Thailand

eddiebe's picture

If injecting liquidity by banks would have any effect on driving the price of gold it would have already happened. 


johny2's picture

correct and polite at the same time.

Al Huxley's picture

Yeah, damn straight!  You know, it's looking like the US bullion banks are long gold for the first time since at least 2001!  Finally those fuckers are going to get their asses handed to them!  Just think how they'll be squirmin' and squealin' as they have to sell off their bullion to pay off the hedge funds who are cashing in on the short side!  You know, I've been getting pretty sick of them utilizing their power to manipulate the market all these years, its a real pleasure to finally see them on the wrong side of the trade! 

Diablo's picture

Because gold has responded so well under QE2, QE3, and Japans QE????

Yeah keep telling yourself that.



Seeking Aphids's picture

Gold has been massively shorted by the powers that be and still bounced back. Let's see where gold is in relation to the $US in five does not need QE to Infinity - just the majority of the world's middle class believing that it is the best and safest store of value in the world.....

Prairie Dog's picture

which it isn't, and they dont


Ckierst1's picture

Oh, but it is and they are on a voyage of discovery!  Bob voyage!  I guess the same claim could be made, after a fashion, for guns and ammo.  I suppose it boils down to a contest between propaganda and correct economics.

Al Huxley's picture

See my comment above - I'm guessing you're onside with the idea the the bullion banks have just fucked themselves by getting long gold, that for the first time in history they're on the wrong side of the gold trade?

ziggy59's picture

China approves domestic gold ETF fund, according to asset manager

Atomizer's picture

Ni hao Bitchez. Take your place in line, just distanced right behind our Japanese joint venture conglomerate benefits program for exclusive VIP members.


kito's picture

Because when China finally does join what is already an historic liquidity tsunami, courtesy of the Fed, the BOJ, and the BOE in one month, then deflation will be the last thing the world will have to worry about...


if china is looking to back its currency with gold, why would they print, devalue their currency and create a surefire revolution when pork prices are out of reach due to massive inlfation???????  more likely, if they are stacking,  they will depeg from the dollar, foster internal consumption, and continue to see the yuan grow as a currency for trade settlement........remember that although exports are important to china....china is looking to decrease reliance on exports knowing full well america is tapped out......better for them to ultimately have a stronger yuan to purchase all of the real assets...........oil, timber, food, metals, minerals needed to maintain their stability..............


kito's picture

hey fonz we agree!!!!!!!!!!!!! perhaps this is the black swan moment the world has been waiting for!!!!  :)

Go Tribe's picture

You guys could have warned us.

Supernova Born's picture

If China's "Operation QE Payback" would be furthered by gold rising it will rise.

Ask Obama's 24/7 scandal quick response team if the Chinese have the capability to fuck with a man's (political) vehicle or not.

Hillary probably already has an understanding with the Chinese. Her Benghazi scandal seems to have disappeared in Obama's scandal tsunami.

Investor-1's picture

Gold is now bottomming. Check out the goldprice here: goudprijs