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China's Demand For Gold Has Trapped The West's Central Banks

Tyler Durden's picture




 

Submitted by Adam Taggart via Peak Prosperity,

Every once in a while, an Off the Cuff interview is so important that we decide to make it available to the entire public. This is one of those occasions.

In this week's Off the Cuff podcast, Chris and Alasdair Macleod build on the insights laid out in Chris' recent mega-report last week on gold: The Screaming Fundamentals for Owning Gold. And specifically, they delve deeply into the poorly-understood topic of why Chinese demand has become such a game changer in recent years.

In my opinion, this podcast offers the best clarity I've heard to-date in explaining:

  • what the true measurement of annual Chinese bullion demand actually is (hint: it's even bigger than you imagine)
  • what the implications of China's gold voraciousness will be
  • why Western central banks had to smash the price of gold last April
  • why Chinese demand exploded at these lower prices, putting the Fed and other Western central banks into a trap (kill the banks or kill their currencies)
  • why the Fed is desperate to keep the price low for as long as possible (and why this suppression will fail)
  • why the Eastern attitude towards gold will trump the West's

In regard to the last point, Alasdair pithily summarized a critical dynamic that, in my opinion, is as hugely important as it is under-appreciated:

In the rest of the world and particularly Asia, people do not think like we do. As far as they're concerned, gold is the only long term asset worth holding. It is the family pension fund. I like quoting the typical situation in India. I first went to India in 1965 and the price of gold at that stage in rupees was around about 170 rupees an ounce. Today it's about 100,000 rupees an ounce. And when you think that the young man getting married at that time -- he'll be a grandfather now -- he would have got a dowry from his wife's family which would have been in gold. His presents would have been gold. Every time they had children there would have been gold. Every time there's a festival there would be gold. Gold is the family pension fund. What other investment has gone from 170 rupees to 100,000 rupees over that period of time? Absolutely nothing! There isn't even an alternative like sensible equities or anything like that for them to play. Gold is the only way they can escape the devaluation of the rupee. And so no wonder it's so popular. That's the story all over Asia, by the way.

 

I think the financial press in the West, the mainstream media, basically they rely for their information on analysts in the bullion banks. And the bullion banks are always short. And so they always get a negative story. Universities teach people economics, the Keynesian variety and the monetarist variety. And there is an assumption that gold is no longer money. It is just a commodity with peculiar characteristics.

 

Now whether the West is right or wrong is not the point. The point is there are 4 billion people in Asia who have got a very old-fashioned view of gold, and they have become wealthy over the last twenty years. And their view is likely to prevail against the <1 billion of us in North America and Western Europe. I mean it really is as simple as that. It's not a question of Austrian economics, or Keynesian, or whatever. We're outnumbered. 

To help drive this point home, consider this...

Click the play button below to listen to Chris' interview with Alasdair Macleod (54m:32s):

 
Transcript 

Chris Martenson: Welcome to this Off-the-Cuff. I have Alasdair MacLeod with me today and we are going to discuss one of my favorite topics, gold, particularly gold in China. It's an extremely important topic. Alasdair, so good to be talking with you today.

Alasdair MacLeod: It's very nice to be talking to you too Chris. Also, it's my favorite topic du jour as you might say.

[Laughter]

Chris Martenson: We have a lot of jours wrapped together. So where do we start in this? Here's—you know where I'm going to start with this—I'm looking at a Forbes article that came out today and it's a reprint read more

 

 

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Thu, 04/10/2014 - 20:06 | 4645670 negative rates
negative rates's picture

We're not out gunned.

Thu, 04/10/2014 - 20:18 | 4645705 kaiserhoff
kaiserhoff's picture

Neat population graphic.  Poor statement of the problem.

If central banks would quit screwing with interest rates, people would treat most durable goods as interchangeable, taking some pressure off gold and silver.  The tyrant class has made most investments a fool's errand, which is why PMs have the potential to blow them up.

 

 

Thu, 04/10/2014 - 20:34 | 4645739 NoDebt
NoDebt's picture

"If central banks would quit screwing with interest rates"

That's a tall order.  Screwing with stuff is what they do.  It's in their nature.

Thu, 04/10/2014 - 20:42 | 4645764 seek
seek's picture

Exactly. This statement can be rephrased as "if we can get elite control freaks to give up being in control and being elite..."

Thu, 04/10/2014 - 22:11 | 4646016 kaiserhoff
kaiserhoff's picture

Not at all.  Academic Economists, ie ,this brand of idiot, are obsessed with money supply, which can be screwed up quite independent of interest rates.  You and I don't care, but Mr. Yellen does.

Fri, 04/11/2014 - 03:51 | 4646555 manofthenorth
manofthenorth's picture

"Five To One"

Yeah, c'mon
Love my girl
She lookin' good
C'mon
One more

Five to one, baby
One in five
No one here gets out alive, now
You get yours, baby
I'll get mine
Gonna make it, baby
If we try

The old get old
And the young get stronger
May take a week
And it may take longer
They got the guns
But we got the numbers
Gonna win, yeah
We're takin' over
Come on!

Yeah!

Your ballroom days are over, baby
Night is drawing near
Shadows of the evening crawl across the years
Ya walk across the floor with a flower in your hand
Trying to tell me no one understands
Trade in your hours for a handful dimes
Gonna' make it, baby, in our prime

Come together one more time
Get together one more time
Get together one more time
Get together, aha
Get together one more time!
Get together one more time!
Get together one more time
Get together one more time
Get together, gotta, get together

Ohhhhhhhh!

Hey, c'mon, honey
You won't have along wait for me, baby
I'll be there in just a little while
You see, I gotta go out in this car with these people and...

Get together one more time
Get together one more time
Get together, got to
Get together, got to
Get together, got to
Take you up in my room and...
Hah-hah-hah-hah-hah
Love my girl
She lookin' good, lookin' real good
Love ya, c'mon

Thu, 04/10/2014 - 22:33 | 4646074 Buck Johnson
Buck Johnson's picture

Yes we are, and how.

Thu, 04/10/2014 - 23:57 | 4646300 Drifter
Drifter's picture

"We're not out gunned."

Classic American hubris?  We'll always be top dog?  With far and away the biggest debt on the planet and currency backed by nothing but military force?  And that military force advantage would disappear when nukes enter the picture?  Or a gold backed pan-asian currency backed up by nukes?

Thu, 04/10/2014 - 20:07 | 4645676 q99x2
q99x2's picture

BitCoin Last Price $355.4830

Calling GoneStar

Thu, 04/10/2014 - 20:15 | 4645701 RevRex
RevRex's picture

Sorry,

 

He's off somewhere achieving Satoshi consciousness or something...

Thu, 04/10/2014 - 20:32 | 4645735 NoDebt
NoDebt's picture

Contemplating the meaning of nothingness.

Thu, 04/10/2014 - 22:01 | 4645986 Scarlett
Scarlett's picture

2 weeks to be back at $450+, maximum

The hash rate is the fundamental that truly matters, not sentiment of buy-high sell-low morons.  

https://blockchain.info/charts/hash-rate?showDataPoints=false&timespan=a...

Thu, 04/10/2014 - 23:22 | 4646230 Rock On Roger
Rock On Roger's picture

I fundamentally like the slow burn black hash.

 

Stack On

Fri, 04/11/2014 - 06:54 | 4646665 stacking12321
stacking12321's picture

not sure i follow your logic.

if you check the coindesk price chart of bitcoin for the last 1 year, it looks eerily similar to the silver 5-year price chart.

silver will probably break out soon, and likely bitcoin will, too.

 

Thu, 04/10/2014 - 22:40 | 4646098 TheReplacement
TheReplacement's picture

So true, so funny.

Fri, 04/11/2014 - 08:51 | 4646919 sessinpo
sessinpo's picture

RevRex  He's off somewhere achieving Satoshi consciousness or something...

-----              

He's in the closet with Bindar Dundat . Perhaps R Kelly can get them with Tom Cruise out of the closet.    

Thu, 04/10/2014 - 21:31 | 4645879 Stuck on Zero
Stuck on Zero's picture

Bitcoin eventual price: 2 bits.

 

Fri, 04/11/2014 - 04:34 | 4646582 RafterManFMJ
RafterManFMJ's picture

Quite a few are already lining up for the haircut. Then comes the shave.

Thu, 04/10/2014 - 21:58 | 4645974 aphlaque_duck
aphlaque_duck's picture

A feeble +300% YOY. 

Fri, 04/11/2014 - 01:35 | 4646450 mrpxsytin
mrpxsytin's picture

For those that bought at $1300?

Fri, 04/11/2014 - 04:49 | 4646587 aphlaque_duck
aphlaque_duck's picture

YOY means today vs 12 months ago.

 

Fri, 04/11/2014 - 07:30 | 4646708 mrpxsytin
mrpxsytin's picture

So those who bought at $1300 are on track for a good YOY return right?

Fri, 04/11/2014 - 07:50 | 4646743 aphlaque_duck
aphlaque_duck's picture

time will tell. I recommend averaging in, not buying on mania.

Thu, 04/10/2014 - 20:11 | 4645678 ebworthen
ebworthen's picture

If Keynesian's like Ben Bernanke and Mr. Potato Head with a beard Krugman think Gold is a barbaric relic I will buy more and sleep with it.

Thu, 04/10/2014 - 20:11 | 4645689 Rubbish
Rubbish's picture

9000 tonnes since the meltdown in financials have gone to China...wow

 

My 2 oz's that got lost today over board as a massive wake hit the boat makes me feel sad. Must buy more,

 

Bitchez !

Thu, 04/10/2014 - 20:11 | 4645691 medium giraffe
medium giraffe's picture

We have a lot more boating accidents in the west.

Thu, 04/10/2014 - 23:36 | 4646259 BlindMonkey
BlindMonkey's picture

Which I find most ironic since you don't have any fucking water.

Fri, 04/11/2014 - 07:19 | 4646690 quasimodo
quasimodo's picture

Sure they do, what else is keeping that all important Delta Smelt alive?

 

Thu, 04/10/2014 - 20:15 | 4645703 kchrisc
kchrisc's picture

Gold destroys the mirage of the thieving FedRes and their bankster cronies so they criminally manipulate the price down. The Chinese, and others, who are looking to get out of the TP dollar and into something "hard" then only see "Blue-Light Special" and buy up all they can.

Talk about laying landmines with ones back to a cliff.

 

"Going to be a guillotine feeding frenzy."

 

Thu, 04/10/2014 - 20:15 | 4645704 BlindMonkey
BlindMonkey's picture

Stack motherfuckers!!!

(Don't mind me. I am blind drunk and monkey hammered at a concert right now.)

Thu, 04/10/2014 - 20:21 | 4645711 Grande Tetons
Grande Tetons's picture

Ben? Is that you? 

Thu, 04/10/2014 - 20:24 | 4645717 El Vaquero
El Vaquero's picture

Alas, I cannot afford to stack gold the way I would like to.  I do have a stack of another precious metal, however.  Pb.  And a shitload of seeds. 

 

(The first of my corn sprouted today!)

Thu, 04/10/2014 - 20:47 | 4645746 Grande Tetons
Grande Tetons's picture

1 ounce of Gold is about 2.5 Ipads, 3 bitcoins, 1300 Betamax VCRs, 1300 FRNs and 65 ounces of Silver.  

Something does not seem right.

FYI, I bought a Betamax a while back at a garage sale for a buck. The guy was asking 50 cents but he did not have change.  In a few years..he can give me his Ipad and we will be square.  

 Edit..3.5 bitcoins.  Tough day for the crypto crowd. 

Thu, 04/10/2014 - 20:59 | 4645788 logicalman
logicalman's picture

Interesting thing is that for the longest time the ratio of Ag to Au was 1:16

So silver should be around 80 compared to gold, or gold should be around 320 compared to present silver.

Given there would appear to be only about 20 years worth of known silver reserves, and it's used up in industrial processes it might be that it could go lower than 16 as it gets used up. I realise this would require a market without manipulation which would also drive those numbers compared to FRNs a lot higher.

Just a thought.

 

Thu, 04/10/2014 - 23:07 | 4646183 Snidley Whipsnae
Snidley Whipsnae's picture

I believe the ratio of 16:1 will prevail when the games stop. Only thing that could cause a hitch in silver's giddy up would be a big slow down in industrial use which is about 70%.

I also expect that silver will one day be a monetary metal again. 

China used silver, mostly Spanish or Mexican, as their currency for a very long time. So did a lot of other Asian countries.  Western bankers screwed that up too when they 'demonitized' silver. 

I have a Peruvian Peso minted in 1793 with lots of little indentations on it ... where it was tested for fineness many times. It's been around. My wife's grandfather (or great grandfather), who worked for RJ Reynolds tobacco in China before WW1, brought it back from China.

I bet there are a lot of old Mex pesos still buried in Chinese gardens.

Thu, 04/10/2014 - 23:30 | 4646246 Rock On Roger
Rock On Roger's picture

Just like a beach ball held under water. When silver takes off it will likely overshoot 16:1.

I don't know if I could hold it until 1:16.

 

Stack On

Fri, 04/11/2014 - 00:28 | 4646364 kchrisc
kchrisc's picture

Yup, silver, the "poor man's" gold, will skyrocket faster than gold.

A) It is under-valued due to manipulation

b) Many with too little to put in gold because they missed the first boat will jump in, but will only be able to afford to hedge with silver.

 

"To the moon Alice. To the moon."

Fri, 04/11/2014 - 00:46 | 4646394 Drifter
Drifter's picture

Gold's disproportionate demand vs silver simply means well-funded players are stacking gold far more than silver.

Who might those well-funded players be?  Maybe some nation overflowing with devaluing US dollars and Treasuries preparing for a new age of gold-backed currencies?  Maybe central banks quietly stacking gold at bargain prices knowing this new age of gold-backed currencies is coming?  Maybe a host of well-funded well-connected individuals seeing the handwriting on the wall and stacking gold at bargain prices?

Could these big well-funded players' demand for gold be far bigger than our collective individual demand for silver, seeing the same handwriting on the wall we do, the end of currencies backed only by military force?

 

Thu, 04/10/2014 - 20:37 | 4645749 BlindMonkey
BlindMonkey's picture

You mentioned seeds and I immediately thought: CO. Never mind.

Thu, 04/10/2014 - 20:17 | 4645706 bugs_
bugs_'s picture

there was once a country so old
that it collected a whole lot of gold
it bought from the west
who sold it in jest
because debasing never gets old

Fri, 04/11/2014 - 11:14 | 4647541 rabetwoirr
rabetwoirr's picture

the west was holding paper

one day it became vapor

cause there was a move that was called bold

money pegged to gold

he who was holding paper

come to be known as a pauper

 

Thu, 04/10/2014 - 20:23 | 4645716 cpnscarlet
cpnscarlet's picture

Being outnumbered in just another "story" that's gold-negative. Cue next paper dump in 3...2...1...

Wash-Rinse-Repeat...

(until you can't anymore... then cue a black horse in 3...2...1...)

Thu, 04/10/2014 - 20:35 | 4645740 Snidley Whipsnae
Snidley Whipsnae's picture

Interesting audio interview with Dr Paul Craig Roberts and Greg Hunter here... 

http://usawatchdog.com/

 

Thu, 04/10/2014 - 20:50 | 4645777 logicalman
logicalman's picture

Saw it yesterday - worth a watch.

Thu, 04/10/2014 - 22:40 | 4646099 Snidley Whipsnae
Snidley Whipsnae's picture

I thought so too. One thing that Dr Roberts bores in on is that the Fed has to keep the gold price relatively low so the dollar will not look too bad in comparison.

We all wonder how long the BIS/IMF/western central banks can continue the suppression of gold. No gov that I know of has ever announced in advance of it's demise so I suppose that some Monday morn we will wake up to bank holidays followed by a string of edicts, new laws, etc.

Years ago I laughed when the western press said 'China is new at this free market game and it will take them 30 years to get up to speed'. True they have misallocated a lot of paper money to rediculous projects but I believe in their eyes they were using paper to build a lot of infastructure, meanwhile they were salting away real wealth in gold. I don't believe the current Chinese government, in the long view, gives a damn about the yuan or any other paper currency. Also, they encourage their citizens to save gold for a reason.

I lived in Japan 4 years and visited S Korea and Hong Kong often and the Asians definitely have different views than westerners. I was most impressed with their emphasis on education, close family ties, work ethic and saving money. 

China used to send caravans consisting of 25,000 camels with an entire army to protect it across vast distances of the globe... they knew a lot about trade and how to finance trade way before even the telegraph existed. They are not dummies.

Thu, 04/10/2014 - 21:25 | 4645853 Joe Tierney
Joe Tierney's picture

When the rising East soon achieves their goals - global ascendancy - then I think the West should institute a new spelling of the word "gold" to reflect the fact that they have been scored against and have forfeited the game.

 

New spelling of "gold" in the West should become: "goaled"

Thu, 04/10/2014 - 22:20 | 4646039 JerseyJoe
JerseyJoe's picture

Hey Chris 

Eligible gold on the COMEX is not ready for sale - Registered gold is ready for sale which is much smaller than eligible. 

 

Here is a great site to track the data.

http://troyozgold.com/precious-metals-precis/

Thu, 04/10/2014 - 22:33 | 4646073 JerseyJoe
JerseyJoe's picture

Alasdair should have given credit to Koos Jansen for unravelling the SGE data.  

Thu, 04/10/2014 - 22:49 | 4646132 Snidley Whipsnae
Snidley Whipsnae's picture

JerseyJoe... Alasdair did give Koos credit and thanked him profusely in the full version of the interview... Which can be heard here... I think they talk often.

http://financialsurvivalnetwork.com/2014/04/chinas-demand-for-gold-has-t...

Fri, 04/11/2014 - 00:07 | 4646320 polo007
polo007's picture

http://research.stlouisfed.org/fred2/graph/?g=wqK

Federal Debt: Total Public Debt

2013 Q4 $17,351,970,000,000

Quarterly, End of Period, Not Seasonally Adjusted, GFDEBTN, Updated: 2014-03-25 8:21 AM CDT

http://research.stlouisfed.org/fred2/graph/?g=wvD

Effective Federal Funds Rate

2014-03: 0.08 percent

Monthly, Not Seasonally Adjusted, FEDFUNDS, Updated: 2014-04-07 3:51 PM CDT

Fri, 04/11/2014 - 09:42 | 4647116 Jack4952
Jack4952's picture

I think that the massive PRIVATE DEBT within the U.S. are of greater concern.

Based on March reports from the Federal Reserve, the modest reductions in household debt are due to DEFAULTS and WRITE-OFFS by creditors - NOT from American consumers repayment of those debts. The most obvious example is mortgage foreclosures whereby debt is discharged via the seizure of homes. A second example: for credit card debt, the charge-off rate – the percentage of dollars owed that issuers have written off as uncollectable – rose to 10.9% in the Q2 of 2010, compared to 3.1% in Q1 of 2006.

Since most "money" is created via people taking out "loans" from commercial banks, will the banks seek to lend to even more "unworthy cfreditors" in the form of credit cards and mortgages? I would guess they will do so ONLY IF the federal government (or the FED) guarantees such loans.

But what do I know? I am a physician.

-- Jack

 

Fri, 04/11/2014 - 01:43 | 4646457 mrpxsytin
mrpxsytin's picture

For those who want gold, and/or a gold backed currency can you please move to Australia. Check out the correlation between gold price and AUD price in USD. It's highly correlated because of how much gold Australia has in the ground. Also it would be nice to get more sensible people living here. You would be very welcome. There's a couple of spare rooms at my place. 

But seriously think about it. Australia has so much potential. We just lack the right type of people to harness that potential.

Fri, 04/11/2014 - 04:57 | 4646591 RafterManFMJ
RafterManFMJ's picture

Was in Perth a few years ago visiting family. Ate and drank quite a bit, really liked brewery called Little Creatures. But damn the dollar was weak weak weak and every excursion put a new crater in my wallet.

Can't afford Aussie land... Thailand or Vietnam, maybe.

Fri, 04/11/2014 - 08:45 | 4646897 esum
esum's picture

Gold will always have value.... fiat currency will become worthless. Does it make sense to have some insurance... only you can answer that .. 

Fri, 04/11/2014 - 09:11 | 4646998 Jack4952
Jack4952's picture

SERIOUS QUESTION:

 

What is the BEST (i.e., most secure in terms of gaining possession on demand) place for GOLD/SILVER STORAGE?

I just finished removing all my gold from safe-deposit boxes at various banks within Europe and literally have buried it in the ground near my homes in those countries. However, the bulk of my gold is still held in storage by ViaMat (in Switzerland). Are private storage companies such as ViaMat still considered "safe" in terms of getting one's gold from them on demand?

If "NO", should I get out my shovel again: or what?

Thanks!

-- Jack

 

 


 

Fri, 04/11/2014 - 13:07 | 4647999 withglee
withglee's picture

Universities teach people economics, the Keynesian variety and the monetarist variety. And there is an assumption that gold is no longer money. It is just a commodity with peculiar characteristics.

Gold never was and never will be anything but a commodity. Money is, always has been, and always will be "a promise to complete a trade". Money just facilitates simple barter allowing it to happen over time and space. It always starts with traders entering into an agreement ... a promise to complete a trade.

This article states gold went from 170 rupees per ounce to 100,000. No it didn't. The rupee went from .00588 ounces per rupee to .00001 per rupee.

To be honest the article should tell us what oil, silver, wheat, land, coal, copper, cement, iron, steel, chickens etc. traded for rupees (and with each other) over those periods. The rupee is just mismanaged. Under proper management, inflation of the rupee would have been zero ... everywhere ... all the time. Under proper management, supply and demand for money are always in perfect balance ... it's the nature of a trade.

Todd Marshall
Plantersville, TX

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