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Tracing The Great Chinese Gold Rush
As we recently noted, China is taking over the world on gold bar at a time. This growing world super-power has, it would appear (by words and deeds) grown tired of being on the receiving end of the USDollar and Fed money printing. The Real Asset Company illustrates how, in the space of a few decades, China has opened up her huge gold market which is now hungrily devouring the world's physical gold.
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The Central Bank of DoChenRollingBearing will do its part to ensure that China does not take all of it. Gold, highly-engineered 52100 steel products and lead & brass -- "Diversification 101" !!
China is a sh!t show just primed for implosion.
Kyle Bass: "A slowdown, whether significant or extreme, in the Chinese economy heralds very bad news for asset prices around the world."
So what does that mean for gold now?
http://www.planbeconomics.com/2013/07/kyle-bass-on-china-deceleration-an...
I agree that China is not "Superman" with all of their problems (demographic, environmental, etc.). If the USA falls, it will be because of our own internal rot.
Old Russian saying: "This fish rots from the head."
I'll go check out your link. But, I will not sell my gold.
EDIT:
I think I read that very same Kyle Bass piece here at ZH, it is dated from June of this year. I would more-or-less concur with Bass here. Japan is in a bad place about to get worse.
Green.
SGE has already delivered 1782.997 metric ton gold during Jan.01 to Oct.25, 2013, in Shanghai
Tyler Durden should write an article to analysis SGE
SGE's Fresh report is here http://www.sge.com.cn/publish/sge/docs/20131101141938467366.pdf
Give you some bouns information:
From Oct.22 to Nov.01, SGE delivered 110.31 metric ton gold, roughly equivalent to Comex 2012 delivery: 110 mt
Bonus Bonus information:
Nov.01 SGE delivered 10.952 mt, Nov.04 SGE delivered 10.58 mt, roughly equivalent to total Comex' registered stock
The Chinese are also buying up all the bitcoin. Volumes at btcchina.com exceed MtGox and Bitstamp now. Price has doubled in a month.
can you think for your self>great we all knew what kyle was thinking >how about you. oh back to monday night football...
As much as I enjoy listening to Kyle, his firm did take a 5% position in JCP pre-crash. Everyone makes mistakes.
Silver and gold have their place in the investment basket, but in a collapse situation there are other items much more important to "own".
"If you can't stand in front of it and defend it with an AR-15, you don't own it." Ann Barnhardt
A corollary: If you need to defend it with weapons inferior to those of your opponents, then you don't own it.
There is a group of economists and Kyle bass is one of them, that continually get it wrong on China. Where they go wrong is they assume that the private banking parasites that are draining the life out of western economies are also in charge in China. This leads them to conclude that China is in trouble. The problem is their assumption is wrong. The Chinese government owns the central bank and most of the major banks and this means they can print money when they need it, forgive debt when they want to and issue more money when they feel like it....all without causing a meltdown. To give some anecdotal evidence ...according to Milton Friedman the 1930s depression was caused by the private banks rather than any fundamental economic law.
2nd try, long I know but worth it, I think.
I have been thinking about Gold for a long time and wanted to put my thoughts down and leverage the experts on this sites by asking a few questions of the group here at ZH. I want to see where my reasoning is wrong?
Apparently Gold leasing is different than other leasing. Normally, when you lease something, you still own it and the Lessee recognizes that he is not owning it but just borrowing it. With Gold, those normal rules don’t seem to apply. Or probably more clearly, with Central Banks, they don’t seem to apply.
When one Central Bank leases Gold to another, both try and count ownership; The one who leased it and the one who owned it. Even more perplexing is the ability of the borrower or Lessee to re-lease it again. This re-leasing can sometimes be many times. Apparently, this is done in the same way banks do with deposits via fractional lending, where banks routinely lease out deposits many times over. In that case, they are assuming that the requests for use of a person’s deposits will be spread out over time, thereby letting the banks rob Peter to pay for Paul. Also should Peter want his deposit back and the bank has already leased it to Paul, Mary, and Julie, the bank can get help from the FED.
With Gold, it appears the same thing is going on. One central bank can lease their gold to another central bank (I believe the Finish bank ZH article outlined this). The first central bank still views that gold as theirs, but the Lessee central bank, or second central bank, also views that gold as theirs, to the degree that they can choose to lease it out again, in some cases, many times.
This is where the GLD ETF comes in. In the fine print outlining how the GLD ETF works, apparently they mention that they can repay a GLD purchase with the market rate in Dollars.
This is where it gets a bit complicated. A central can use 1 leased gold unit (whatever unit you want), to re-lease to create 90+ leased GLD units, and then use their purchased GLD shares to short, via derivatives, an essentially unlimited amount of GLD. That is a huge amount of leverage. Since the central bank does not want gold to go up they can do this without any downside risk, certainly not the same downside of someone who has to buy back at market rates. In the case of the Central Bank (or their representative JPMChase) they can lose money closing out their derivative shorts, while still making money on the 1 leased gold unit turns into 1000s of GLD units. Even an entry level trader would be able to make money with that advantage.
Now does China buying Gold change the situation? Well, China is buying Gold to back their inclusion into the world of Reserve currencies. But they just want to be part of the basket, not the sole reserve currency. Once they have that role and they have that Gold, what makes them act any differently than any other Central Bank? They could just continue acting in the same way as the US central banks have. Indeed ANY AND ALL central banks are motivated to use that 1 to 1000 leverage that they have against gold to keep Gold down and fiat currencies up.
So this is all a build up to the question: Given all that, why would Gold ever go up? Why would it be in the interests of ALL Central banks to let gold go up? In order to beat the 1 to 1000 leverage central banks use via GLD, non central banks would have to own and act in unison with 1000 times more gold than the Central Banks have. I don’t see that as ever happening. Given that, does it ever make sense to buy Gold? I think the same comments apply to Silver, which I own lots of in Physical and via CEF.
TIA for any thoughts comments?
Top quality anonymous gold analyst FOFOA has your questions pretty much nailed in his latest piece. In it he pretty much shows how the LBMA (and other players) move tremendous amounts of paper gold around (including leasing), and this affects the "spot" prices we all pay for physical gold. The current "paper gold" to "physical gold" is about 55:1 to 100:1, depending on whose figures you accept. FOFOA himself wrote here that no one else that he knows of has put out a piece like this:
http://fofoa.blogspot.com/2013/10/gold-as-forex-currency.html
But, it is physical gold that in the end will rule the roost. To understand FOFOA's main points the best, you should try to read as much of his blog as possible (very long pieces in many cases).
No, I am not FOFOA.
All thats going to be left here is paper. One day, Gold is going to gap up a couple hundred bucks, probably when China announces how much physical they have, and the LBMA and comex will be finished. Accounts will be cash settled and that will be all she wrote...
It is really pretty simple..
To a scumbag banker, gold is just another notion of an asset to abstract, fractionalize, synthesize, hypothecate, conjure, counterfeit or otherwise defraud the muppets with.
They will continue the scam until something happens to impose reality and stop them.
Then they will just lay low until they have the chance to start the scam all over again.. unless good, smart, free people eradicate all traces of their DNA from the planet.
Well said. Combine the multi-leased, multi-hypothecated gold with all the other derivatives bearing strange acronyms and watch when one of the holders goes bust, the unravelling will be so monumental that I am afraid to even think what will happen.
Act accordingly mates.
even before reading your query this article got me thinking maybe china just wants to play the same game with gold as the west, so its a fair question to ask whether china will only add to the price suppression participants.
but then, its phyz holdings are now so large - and its $US surplus holdings deteriorating in value, that i can well imagine china's temptation in causing a comex default/skyrocketing gold prices as only fair compensation for making so much shit for the rest of the world that isnt paying for it.
other answers to your questions is that if china participates in the central bank game instead of seeking a reset/new global currency regime is that china will then be subject to the same diminishing returns of the fiat game whereby debt continues exponentially to drain the productive segments of the economy.
and a gold reset is a great alternative to jubilees/debt forgiveness
Makes sense to me, China is just as big of a Bubble as the West, if they prick the West's bubble they are going down with it too.
So they are just positioning them selves to get a bigger piece of the Pie not to ruin the whole cake.
Who in their right mind would think that the Chinese Politburo would (intentionaly) do anything to liberate us from the Fiat World in the 1st place?
Either way it would be impossible for them to buy up the market completely, even if they owned 90% of the physical the 10% remaining with a 100(0) to 1 leverage will still dominate true price discovery
Great blog, got me thinking, but I'm hanging on to my physical :)
I think that logic rules these trades in paper, $1,200 cost, some days we are the bug, some days the windshield. The merry-go-round stops when the physical is gone or the emperor is seen with no clothes.
Gamble I'm willing to take.
Yes the Bankster will never allow Gold to appreciate significantly over the cost of production, as long as they are in control anyway.
So the cost of production is the Baseline for Gold and the Target at the same time.
Short gold miners much?
Thanks for the link. Interesting read. I never knew there was a carry, never mind a positive carry on shorting gold!
The Gold community completely ignores the elephant in the room namely the LMBA. and FOREX Gold This jumped out from the link you posted.
Total London gold turnover in the first quarter of 2011, as reported by 36 LBMA members, was $15 TRILLION. Total turnover as reported in ounces was 10.9 BILLION ounces, or 340,402 tonnes over 63 trading days. even if you argue that it's the same gold being traded over and over it's still a absurd number.
Gold bulls like the article above point to the huge demand for physical gold as leading to higher prices. Yet physical demand is absolutely overwhelmed by paper Gold trading in London.
back in April I think 400 tons of Gold was sold on the LMBA in one trade at the market. This broke the bid stack causing the spot price to plummet. There was speculation as to what entity had that amount of physical Gold on hand to sell into the market at one price. The answer is no one. Look at the number above 340,402 tonnes over 63 trading days. 400 tons is a drop in the bucket. It takes relatively little capital to sell 400 tons of paper Forex Gold.
The size of the Forex market is orders of magnatude above the Futures, option, ETF and physical market so it would be easy to dump 400 tons of paper Gold and make huge profits shorting in offsetting markets like those above.
The bottom line is no physical demand will set or effect the spot price as long as Forex Gold dominates the spot price.
"They (the FED) tried their taper a few months ago and interest rates soared. They knew if that continued it would be catastrophic, so now the Fed is now back to releasing new propaganda that would make even Nazi Reich Minister of Propaganda, Joseph Goebbels, cringe.
With each passing day, as the gold supply moves from West to East, people that are interested in positioning themselves in gold better hurry up and do it because there is going to come a day when it’s nearly impossible to get a large position in physical gold, or silver for that matter. Anything I say about gold, and I’m extremely bullish on gold, you can just double that for silver. The simple fact is that silver is a materially smaller market than gold, so any significant amount of money hitting it will have a more outsized impact."
John Embry 11/4/2013
GOLD & SILVER bitchez. Take delivery.
china produces the most gold in the world...where would it like the price of gold to be?
china has the most foreign assets, we tell it that its domestic assets are bubblicious, so it exchanges foreign (fiat) assets for foreaign (real) assets = oil fields of nigeria, mineral rights in africa, pig farms in the USA..and gold...
china is communist, but it is allowing comrades access to all the gold it is mining as there simply isnt sufficient gold to give every comrade one ounce of gold (1.6 billion ounces?)
the song remains the same..food, air and water..clean and non-fiat liquidity...china is getting dirtier and dirtier...
clean assets? foreign (real) ones...and gold...time taken? probably the amount of time the west will take to eat its rich..and middle class...ever heard of welfare benefits in china? (listens...)
Physical Gold is never for sale is large quntities, so the price means nothing, Gold is a Reserve Asset only, everybody knows that gold does not have a paper equivalent value(unless very short term) so no country will willingly export large ammounts of it. China could not care less for the price of Gold, they like to keep it low too so they can buy more on the open market. Eventually 1 day when they have enough of it, probably be the no.1 in the World they will simply use it as leverage like the Central Banks of the West are doing now, so Nothing will Change!
It's not that gold will ever go up, it's that all fiat will become increasingly worthless. There!
Have you done any investigation concerning the Washington Agreement On Gold? It would seem that the CBs do have an interest in keeping gold above certain notional prices.
There is phyzz, and then there is paper.
You might think their on a mission .......LOL
Fiat currencies will come and go, but there will always be Gold.
The biggest hedge ever? Well they HAVE to see their economic downturn coming, it's in their damn face. Sooo..ya, they are importing a huge amount of gold..because they HAVE to not because they are so fucking awesome. What is gold? It is a store of value. Why would a country import and horde this much gold? To prepare for the biggest economic collapse ever..period.
I think it's the U.S. Americans who HAVE to see their economic downturn coming, it's in their damn face. However, we don't seem to be able to do anything about it ... most don't even buy gold.
I lived in China. The wheels of labor utility are literally a train full of fresh off the farm migrants from Western China.
The name of the game in China is the perpetuation of the illusion that they can keep the migrant worker flowing into eastern cities (I was in Beijing).
I saw their faces, their scum riddled hands, their skin darker than that of a East African, because of their long labor days in the sun.
This is the face of China's economic engine. I saw it. I even rubbed shoulders with it on the sidewalk. When China's Yuan goes stratospheric because of the dollar bubble or government debt bubble, be ready for one of the greatest mass migrations from Eastern China to Western China to take place, because all of those millions that can't afford to buy a home that is 80x their annual income level, will be forced back into subsistence farming.
Take it for what it's worth, but I saw the innefficiencies, the corruption, the materialistic filth of consumerism that is 100x worse in China where it is not unnomral to hear of a kid selling his kidney on the weekend just to get an ipad.
I'm not saying we are better than them by any measure, but wholly Fck, get ready for a depression the likes of which the world has never seen.
Your comment is the most precocious I have seen spoken about China and WHY they are buying gold. Everyone thinks its because they want to become the world's reserve currency, but they know it is impossible. They are still 30 years away from creating a consumer economy when half of the country still lives on less than a dollar a day. The crash will be painful in America, it will be deadly in China.
You would think so but no. America dominates this planet son. We hint at tapering and the entire world shivers. We go where we want and do what we want. Stfu with your crap.
did you just wake up from a coma induced in 1992?
USA USA USA
China still has to get rid of USD. Gold is just a way to send USD back out of the country. Japan did the same years ago as exports flooded them with USD they could not convert to Yen.
oil is it, trading in USD. china states it wants to change the reserve currency to a basket of currencies backed by commodities as otyhers have suggested, it is going to happen, so gold backed chinese currency will be a part of the mix. what will the dollar buy in oil and gold? more? really don't think so. our debt will drop in value and gold backed cureency will increase causing china to be able to start buying more oil and resources for less. should be interesting when a chinese corporation buys half the farmland in iowa. got milk?
The Big Picture in Gold:
Gold: As Good As It Gets…For A Buy
Aden sisters provide us with very interesting long-term historical charts for Gold and their applications for the potential next move. These observations are particularly important, when you take in the account the recent COMEX situation and China's demand for Gold.http://sufiy.blogspot.co.uk/2013/11/gold-as-good-as-it-getsfor-buy-gld-mux.html#
"expatriation" HAHAHAHAHA. I think the correct term is THEFT! One of the only two good things he did, along with stealing a bunch of the treasures which are now in the "National" Palace Museum.
Fire Angel
The question of where or what is sitting with those savy investors that have just made great fortunes. Where will the next great market be? China? No, that's old. Smaller Asian production countries NO! Too Late. South America? Some surprises like Paraguay maybe. Risky! Too affected by America's demise. Not Europe! WHERE?
Sochi and Abkhazia! Do a REIT THERE!!
Here in Finland we sell crap gold to China and buy houses. Huge profits believe me
p.s. chinese are just plain stupid
The part I can't wait for is when they actually update ther official holdings.
None of this "press release" bullshit, I want a full-on chinese gangster rap video shot in their fort knox equivalent. Chinese dudes in Mithril shirts with 24ct grills and knuckle dusters, fat ass models in gold-leaf bikinis. Topped off with President Xi sitting in a solid gold Mech in front of their mountainous stack of phyzz, screaming "LOOK HOW MUCH WE GOT BITCHEZ!!!".
A full on, bad taste "fuck you" to the entire west.
I'm still wondering if Germany's gold is learning to count in Chinese.
It's interesting to watch the boys in London play with Forex Gold. Today they pumped the price up to 1,320 at 7:45 eastern time for the traditional bang the close, so Gold opens in New York at 1,305. This is a mild day. Some days they really hammer it.
Is there any evidence that current physical gold inflows to China are not *already owned* by Chinese authorities & simply located in London?
… has China been buying for a long time, and only now repatriating & onselling thru SGE when gold price is *coincidentally* low?
…this massive physical delivery doesn't affect price if supply is *willing* to meet demand.
Chinese state appears to be distributing *its* gold amongst its citizens.
link
Allow the citizens to buy it, then outlaw private ownership and suck it all up. The Chinese are taking a page out of the USA playbook. Clever.
goldbugs