Gold And China's Challenge To The "Narrative Of Central Bank Omnipotence"

Tyler Durden's picture

Submitted by Ben Hunt via Salient Partners' Epsilon Theory blog,

There were no donkeys in Guizhou until an eccentric took one there by boat; but finding no use for it he set it loose in the hills. A tiger who saw this monstrous-looking beast thought it must be divine. It first surveyed the donkey from under cover, then ventured a little nearer, still keeping a respectful distance.

One day the donkey brayed, and the tiger took flight and fled, for fear of being bitten. It was utterly terrified. But it came back for another look, and decided this creature was not so formidable after all. Then, growing used to the braying, it drew nearer, though it still dared not attack. Coming nearer still, it began to take liberties, shoving, jostling, and charging roughly, till the donkey lost its temper and kicked out.

“So that is all it can do!” thought the tiger, greatly pleased.

Then it leaped on the donkey and sank its teeth into it, severing its throat and devouring it before going on its way.

Poor donkey! Its size made it look powerful, and its bray made it sound redoubtable. Had it not shown all it could do, even the fierce tiger might not have dared to attack.
Liu Zongyuan (773-819 AD)

A quick email to follow up on last week’s big note “The Dude Abides: China in the Golden Age of Central Bankers.” A number of readers asked if China’s accumulation of physical gold played a significant role in China’s current and forthcoming challenges to the Western monetary policy status quo. Absolutely! It has exactly the same meaning as the recently announced dollar-free natural gas trade agreement with Russia. It’s a fang. It’s a claw. It’s a tool in the construction of an alternative monetary policy regime structure.

Gold has meaning to China in the same way that gold has meaning (or should have meaning) to Western investors. Not as an inherent store of value or some timeless monetary standard … if you’ve gotten nothing else out of Epsilon Theory over the past year I hope it’s a recognition that there’s nothing eternal or timeless about anything that the human animal does, particularly in social practices like trade or commerce … but as a symbol of failed confidence in Western central bank control over market outcomes. To both investors and China, gold is an insurance policy against Western central bankers losing control of their massive monetary policy experiment. The difference is that China has the power to do something about it.

What will China do and when will they do it? Other than pointing you to what China is already doing – weakening the renminbi, pushing against the dollar denomination of international trade in every possible venue, acquiring technology by any means necessary, claiming vast tracts of energy-rich territory – and suggesting that these behaviors will accelerate and expand … I have no idea. But this is exactly why it’s possible to find asymmetric risk/reward opportunities for trading on future Chinese-led challenges to the Narrative of Central Bank Omnipotence. If this were simply a matter of identifying the outcomes and odds of known policy initiatives, then we wouldn’t be talking about the possibility of a Big Trade. Identifying that potential in an environment of uncertainty as opposed to mere risk, whether it’s a bet on gold or – my choice – a bet on the hard peg of the Hong Kong dollar and US dollar coming undone, is where game theory can really shine and what gets me up in the morning.

How should the US respond to the “shoving, jostling, and charging roughly” that the Chinese tiger is starting in the economic realm? Coolly, with no braying or kicking out in anger. So long as China perceives the US as another, larger tiger – as opposed to a donkey – this is not an inevitably apocalyptic Great Power confrontation. To switch metaphors from animals to poker, China will not put the US all-in unless it believes that it knows the cards everyone is holding. The careful use of intentional ambiguity is extremely useful in these situations, but unfortunately that has not exactly been the US forte of late! Understanding this sort of strategic interaction and communication is what game theory is designed to do, and it’s an analysis that I hope you’ll look to Epsilon Theory to provide.

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Greenskeeper_Carl's picture

'Insurance against western central banks losing control'
A 10 year depression , real inflation running 8-10%, and a constantly shrinking labor participation rate, along with our central bank basically owning the treasury market and buying garbage MBS's to keep the illusion going. Id say we already 'crossed the rubicon' on that one

DoChenRollingBearing's picture

Ahh, this article was a weird way to say that gold is a good investment/insurance against bad .gov financial policies...

Re China, if we just keep our cool and not screw up things (big if), I do not believe that we need worry about them.  There is no need to be aggressive re China.

Our Federal Reserve would do very well to ape the Chinese CB though, at least the buying gold part.  Is that likely?  Ahh, about as likely as .gov stopping deficit spending...

Their CB devaluing their currency is probably not a good idea though.

MeMadMax's picture

I'm here for the chick in the thumbnail pic.




bunzbunzbunz's picture

Me too, mewtwo, something like that (pokemon ref.). Gold is manipulated up AND down. The dollar is getting replaced by bitcoin. Get some free at

Pinto Currency's picture



"... gold is an insurance policy against Western central bankers losing control of their massive monetary policy experiment. ..."


So China creates $15T of loans over 5 years and gold is to protect China against Western central bank malpractice?



GetZeeGold's picture



replaced by bitcoin. Get some free


It's easy to give crap away free when it's made out of any free gold?

jonytk's picture

they can give for free 0.00002 bitcoin because that's more than what they earn when you click on the banners on the page. so it's not free, you are "working" for them.

OldPhart's picture

China will not put the US all-in unless it believes that it knows the cards everyone is holding.

We've got a mirror behind our back, cameras surrounding us, and our particular dealer, the FED, works for the owners exclusively, and the casino has every cop paid off to shoot first.

DirkDiggler11's picture

Maybe I'm a bit dim tonight, it's been a long day, but after reading the entire article the takeaway is ???

China likes Gold ... Ok, that not really news.

gdogus erectus's picture

You are a jackass if you like gold? I'm confused.

bunzbunzbunz's picture holds mostly psychological value just like fiat currency. So yes. You are a jackass if you like gold for anything other than the industrial value it stores.

UselessEater's picture

Big Mac burger head with the triple buns... you're awesome, please keep talking PM's down.

Some on ZH consider themselves to be goldenjackass's ;)

Seasmoke's picture

A Tiger takes out a black and white jackass. Now That's poetic justice !!!

pods's picture

China ain't gonna compete for world omnipotence, gold or not.

In ten years China will be wondering why there is no more water to drink, and no more arable land.


Goldilocks's picture

Chinese Purchases of U.S. Real Estate Jump 72% as The Bank of China Facilitates Money Laundering

DoChenRollingBearing's picture

If we put our condo up for sale, I will instruct our Realtor™ to put an ad in some Chinese publications, but add $1.5 million to the price.

Well, $2 million more maybe.  Hey, the higher the price, the more successful the money laundering!  Everyone's a winner!

Dublinmick's picture

I took a look at that link. I had no idea the Chinese were making such high profile land purchases.

I can't help the look of pity around my eyes when people begin talking about we and our government from a European perspective. Europeans have proven they cannot successfully run a country here for 200 years. For 200 years they have been under the illusion they were free with no idea the Battenburg clan and the pinkerton gang from London have been running the place. Yeah it is actually referred to as a defunct corporation in Black's law book. They don't actually own property either. Look on the deed and you are called a tenant. Miss one tax payment and see how much land you really own,.The IRS and the ABCs work for London collecting the taxes and sending it back where your social security number emanates from.

Most long standing Americans actually believe all they have to do is get that conservative in there and things will be O.K once again. They live in a dream world actually believing that they are actually electing representatives who run for office due to their qualifications. The higher echelons are the queen's cousins and the lower ones are usually masons.

The ticket to success in many cases today in America is to fail. Then you are eligible for a HUD home, probably a two story job. It is being done here Florida (Disney World). You see people walking out of a two story home and going to work at a fast food place. It is all accomplished with fiat money also.

I finding I get along better in many cases with Chinese and East Indians I run into. They are not as dumb as a rock. There is probably a reason for that also as most of them are better informed about diet, the use of minerals etc. You know not cooking out of aluminun, tefon etc and jumping all over the newest prescription drug or vaccine. They don't drink slurpees as their old customs prescribe drinking tea out of silver, copper and iron. You are not only drinking the tea, you are drinking the minerals. It is probably one reason the European simply cannot compete with them academically. Americans have been poisoned, but being fair, we are probably looking at the more upwardly mobile and talented layers of Chinese and Indian societies coming here. By the way you might take note, the Jews do tend to use silver and bronze in their kiddush cups. Of course the royal families also are known for silver utensils, not oil based plastic cups.

Watch people shopping in the grocery store, they will pretty much eat anything and drink out of anything. Buying food these days is like walking through a mine field. Super aspartame now legalized and going into the food supple along with GMO corn syrup. Aluminum cans actually enhances the damage done by fluorida and aspartame.

If the Chinese are buying land around New York they are making a serious mistake. (Ramapo fault) and there was just a 5.2 quake five kilometers from the Indian point nuclear power plant. There is no known fault under it but it located on a crystalline strip that goes under the plant. I am afraid Cayce and Nostradamus will be proven correct fairly soon, same with buying up land in California. (San Andreas fault).

The Chinese buying land here doesn't worry me at all, maybe the dragon will do a better job than molech has been able too.

In the long run, I am not too worried about. It is my opinion after the coming earth changes, what few people who are left if any will most likely divide up once again into agricultural tribes.

As I have said before, the Kali Yuga always ends this way.

Sometime around 23 hundred years ago we see in the Mahabharata Ydhishthira has a vision of the age to come: I see the coming of another age, where barbaric kings rule over a vicious, broken world, where puny, fearful men live tiny lives, white hair at sixteen, copulating with animals, their women perfect whores, making love with greedy mouths. The cows dry, trees stunted, no more flowers, no more purity, ambition, corruption, the age of Kali, the black time."



Rock On Roger's picture

Apparently the gods used gold utensils with which to eat.

That's why we're here, digging and stacking,

For the gods.


Stack On

Dublinmick's picture

They say the popes drink from a golden cup.

Gold is the king of minerals. Studies now show gold chloride attacks cancer cells. The Mahabharata written 2300 years ago indicates it powered flying disks also. There is a diagram of a perfectly working UFO in the book.

The Chinese do sometimes put a little gold in their bronze cookware however. Notice many middle class Chinese sell woks made from carbon steele and iron, not stainless steel which contains cadmium and nickel which is not very good for the kidneys.

bunzbunzbunz's picture

.............................You are kidding with this shit right? Do you work for Kitco or are you just an entusiastic Ebay seller?

Davos's picture

you know nothing, do you work for the FED?

Gold is the philosophers stone, monotomic gold... created from the sacred fire, the fire that does not burn.

Monotomic gold is EXOTIC MATTER science cannot explain its properties

Dublinmick's picture

bunzbunz, this was addressed to those who don't eat out of teflon, Carry on.

shovelhead's picture

I love Dublinmick.

He's got buckets of crazy he hasn't even used yet.

Son of Loki's picture

Walk into any jewelry shop in HK or Shanghai and you'll see it packed with Chinese buying gold. When I was there several little old ladies were buying a handful of the 100 gram bars. It's a pretty incredible sight to see how much money the Chinese folks have these days. I'm not surprised at all hearing about them paying cash for Million dollar houses. China now has a very wealthy Middle Class; yes, the class transferred from the USA and Europe to China. Even middle class Canadians are now wealthier the Merikans.



booboo's picture

well then, so we will all have crooked toofers, eat mayo on our farsi fries.

Jerk_Store's picture

Yeah, but we got the salad shooters.

Goldilocks's picture

The Chinese Are Buying Large Chunks Of Land Across America (And Zillow Is Now Enabling It)

SweetDoug's picture




How should the US respond to the “shoving, jostling, and charging roughly” that the Chinese tiger is starting in the economic realm?


I think his answer is bullshit.


China is moving forward, no matter the shoving, jostling et cetera. It has what it has. China is going to dump american treasuries at some point and back the yuan with gold.


Thus endith the US.

RaceToTheBottom's picture

What benefits does China get by backing its currency with gold?

The down side is it will lose the ability to print yuan without pulling a Nixon. 

Why would they give that up?

RaceToTheBottom's picture

This article missed a great opportunity to try and explain why China and it's Fed would not act exactly like the US Fed.


The Chinese have printed 3X of the US.  Granted they got infrastructure, we got WS bonuses and institutionalized corruption.  

But why would they not have the same war against GOLD/SILVER that the US FED has?

That is the question that this article should have addressed....


robertocarlos's picture

After the Chinese buy enough of your land.... Just ask the East Turkistans.

user2011's picture

Keep an eye on these Communist Chinese.   Make sure they are not importing tungsten and lead.   

Rodders75's picture


My heart always sinks when I see dumbfuck supposed sinologists using clichéd pithy Chinese aphorisms or folk tales or quoting Deng Xiaoping (black & white cats) and Mao (power & gun barrels). Wow, the Chinese are just SO much wiser than us morons in the West. They get it; we're a bunch of losers. 

What the writer and other naive China lèche-cul permabulls don't realise is that grannies buying gold and the middle class / rich buying foreign property do it because (1) they're scared of what the future holds for China given its turbulent past, and (2) life is unpleasant in China amidst pollution, overcrowding and shite education and no health and social benefits. Surveys show most Chinese want to leave. This is a defensive move not born of any great wisdom and foresight. The CNY has as much chance of becoming a reserve currency as my ex-wife talking sense. Nil. You need a proper bond mkt. You need there not to be capital flight as soon as you liberalise the capital account, as per the Union Pay scam in Macau. You need people to think China ain't in a bubble and going to collapse at some point. What it prob will do is replace the USD for certain transactions, with other EMs, eg Russia (which has a declining population and is run by gangsters for fuck's sake!). 

Sure, we in the West have shyster scumbag politicians, unfunded liabilities and QE ad infinitum administered by Goldman Sachs, but the Chinese preside over the greatest bubble in human history and are sitting on a bed of gelignite. The property mkt WILL collapse far more than most people expect. Given property's use as collateral EVERYWHERE, the Chinese financial system will follow, from the banks to all the crappy negative-equity finance vehicles. China will enter a gigantic slowdown, devalue the yuan and send tanks into the streets to crush dissent, probably failing in the process leading to civil war. Hong Kong will collapse (why is Li Kashing getting out?). As will Taiwan. Brazil will perform economically as well as its football team. China may lash out against Japan and Vietnam to distract the masses. Chinese deflation will be exported everywhere leading to ever more QE, pushing gold to the moon. The S&P will go to 400. Economic nuclear winter. Possible end of civilisation as we know it.

What people don't realise is that the Chinese are buying gold and going abroad because they foresee all of this. They know their dynasties never last, and the Communist Dynasty is the same as all the others. This is the calm before the storm. Get ready for serious chaos. The US is in deep shit but Chinese is a donkey AND a tiger (of the PAPER variety). Starry-eyed arseholes who think economics don't apply in China in the same way as everywhere else should wake up and smell the coffee. The poor old Ricains run by Obamarsehole might actually be better off - but only relatively so - we're all fucked. 


Canucklehead's picture

I agree with your point of view.

The Chinese are run by a 7 member Politburo Standing Committee. Decisions are made by consensus. There are lots of seams to hit when manipulating a decision by this committee. As events force the speed of decision making to pick up, this committee will try to slow things down. Once it breaks, all hell breaks loose internally.

As you indicated, the average Chinese citizen no longer sees themselves as a subject and have bought gold et al to buffer the mess that is about to befall them.

Oh, and I see China as the donkey in the above example.

Dublinmick's picture

Relax I am simply saying many of the Chinese I have met seem very intelligent and sociable. It is not like I said they were the chosen people. 

Gavrikon's picture

Yeah, but the US is run by jackasses.

shovelhead's picture

The only take away from this article is:

Buy my newsletter.

Cool donkey story bro.