Wikileaks Discloses The Reason(s) Behind China's Shadow Gold Buying Spree

Tyler Durden's picture

Wondering why gold at $1850 is cheap, or why gold at double that price will also be cheap, or frankly at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar's reserve status. Putting that into dollar terms is, therefore, impractical at best, and illogical at worst. We have a suspicion that the following cable from the US embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24 karat pool. The only thing that matters from China's perspective is that "suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB." Now, what would happen if mutual and pension funds finally comprehend they are massively underinvested in the one asset which China is without a trace of doubt massively accumulating behind the scenes is nothing short of a worldwide scramble, not so much for paper, but every last ounce of physical gold...

From Wikileaks:

3. CHINA'S GOLD RESERVES 

 

"China increases its gold reserves in order to kill two birds with one stone"

 

"The China Radio International sponsored newspaper World News Journal (Shijie Xinwenbao)(04/28): "According to China's National Foreign Exchanges Administration China 's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB."

Perhaps now is a good time to remind readers what will happen if and when America's always behind the curve mutual and pension fund managers finally comprehend that they are massively underinvested in the one best performing asset class.

From The Driver for Gold You’re Not Watching (via Casey Research)

You already know the basic reasons for owning gold – currency protection, inflation hedge, store of value, calamity insurance – many of which are becoming clichés even in mainstream articles. Throw in the supply and demand imbalance, and you’ve got the basic arguments for why one should hold gold for the foreseeable future.

All of these factors remain very bullish, in spite of gold’s 450% rise over the past 10 years. No, it’s not too late to buy, especially if you don’t own a meaningful amount; and yes, I’m convinced the price is headed much higher, regardless of the corrections we’ll inevitably see. Each of the aforementioned catalysts will force gold’s price higher and higher in the years ahead, especially the currency issues.

But there’s another driver of the price that escapes many gold watchers and certainly the mainstream media. And I’m convinced that once this sleeping giant wakes, it could ignite the gold market like nothing we’ve ever seen.

The fund management industry handles the bulk of the world’s wealth. These institutions include insurance companies, hedge funds, mutual funds, sovereign wealth funds, etc. But the elephant in the room is pension funds. These are institutions that provide retirement income, both public and private.

Global pension assets are estimated to be – drum roll, please – $31.1 trillion. No, that is not a misprint. It is more than twice the size of last year’s GDP in the U.S. ($14.7 trillion).

We know a few hedge fund managers have invested in gold, like John Paulson, David Einhorn, Jean-Marie Eveillard. There are close to twenty mutual funds devoted to gold and precious metals. Lots of gold and silver bugs have been buying.

So, what about pension funds?

  

According to estimates by Shayne McGuire in his new book, Hard Money; Taking Gold to a Higher Investment Level, the typical pension fund holds about 0.15% of its assets in gold. He estimates another 0.15% is devoted to gold mining stocks, giving us a total of 0.30% – that is, less than one third of one percent of assets committed to the gold sector.

Shayne is head of global research at the Teacher Retirement System of Texas. He bases his estimate on the fact that commodities represent about 3% of the total assets in the average pension fund. And of that 3%, about 5% is devoted to gold. It is, by any account, a negligible portion of a fund’s asset allocation.

Now here’s the fun part. Let’s say fund managers as a group realize that bonds, equities, and real estate have become poor or risky investments and so decide to increase their allocation to the gold market. If they doubled their exposure to gold and gold stocks – which would still represent only 0.6% of their total assets – it would amount to $93.3 billion in new purchases.

How much is that? The assets of GLD total $55.2 billion, so this amount of money is 1.7 times bigger than the largest gold ETF. SLV, the largest silver ETF, has net assets of $9.3 billion, a mere one-tenth of that extra allocation.

The market cap of the entire sector of gold stocks (producers only) is about $234 billion. The gold industry would see a 40% increase in new money to the sector. Its market cap would double if pension institutions allocated just 1.2% of their assets to it.

But what if currency issues spiral out of control? What if bonds wither and die? What if real estate takes ten years to recover? What if inflation becomes a rabid dog like it has every other time in history when governments have diluted their currency to this degree? If these funds allocate just 5% of their assets to gold – which would amount to $1.5 trillion – it would overwhelm the system and rocket prices skyward. 

And let’s not forget that this is only one class of institution. Insurance companies have about $18.7 trillion in assets. Hedge funds manage approximately $1.7 trillion. Sovereign wealth funds control $3.8 trillion. Then there are mutual funds, ETFs, private equity funds, and private wealth funds. Throw in millions of retail investors like you and me and Joe Sixpack and Jiao Sixpack, and we’re looking in the rear view mirror at $100 trillion.

I don’t know if pension funds will devote that much money to this sector or not. What I do know is that sovereign debt risks are far from over, the U.S. dollar and other currencies will lose considerably more value against gold, interest rates will most certainly rise in the years ahead, and inflation is just getting started. These forces are in place and building, and if there’s a paradigm shift in how these managers view gold, look out!

I thought of titling this piece, “Why $5,000 Gold May Be Too Low.” Because once fund managers enter the gold market in mass, this tiny sector will light on fire with blazing speed. 

My advice is to not just hope you can jump in once these drivers hit the gas, but to claim your seat during the relative calm of this month's level prices.

h/t Simon via TF Metals Report

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DoChenRollingBearing's picture

@ Captain Benny,

I hope that most here started buying gold long ago, and so got a huge bargain.  Loks like demand for physical is going to pick up substantially.

I see no .gov iniatives that will fix anything.

Zip.  Zero.  Nada.

DoChenRollingBearing's picture

Since two kind ZH-ers sent ME this info, so I send it along to you all.  These two places will give you futures quotes on a variety of things (Dow, gold, Euro, etc.):

http://finviz.com/futures.ashx

and 

http://www.sgxniftydowfutureslive.com/index_files/DOWFUTURES.htm

These are not LIVE now, but apparently all this futures trading starts at 6:00 PM ET Sunday evenings.

Smiddywesson's picture

If gold does what I think it will, it doesn't matter how long we have been in it.  The real ramp in prices is to come.

Snidley Whipsnae's picture

Have we all forgotten that the Univerisity of Texas bought $1 Billion of physical gold a couple of months back? That purchase represented 5% of the U of T endowment fund, which they reported as $20Billion...

Not all funds are clueless.

FunkyMonkeyBoy's picture

The USA should be greatful they have their sizable stash already, all locked down in Fort Knox... right... right?

Long-John-Silver's picture

The last audit was in 1945.......

I think most of that Gold has been electrically plated to bars of Tungsten. 

cossack55's picture

Partial audit, unverified. There has NEVER been (at least publicly devulged) a 100% audit, inventory and assay.

FeralSerf's picture

It's cheaper to make them out of old 2x4 scraps and paint them yellow.  Home Depot is very good at matching colors.  As long as you can't touch them, it doesn't matter how much they weigh.

GetZeeGold's picture

 

Yeah....right....sure.

 

mr. mirbach's picture

There is no US gold in Fort Knox or anywhere else, get over it.

Smiddywesson's picture

They have had three years to replace the gold in Ft. Knox.  They would be idiots to not have replaced it.  Central bankers are infallible...right....right?

I say its there (now) but will admit it could still be playing hide and seek.

Manzilla's picture

Congrats again to Wikileaks for telling people with more than half a brain what we already knew. Good job Julian, go back to raping women and acting smug. Now.... where's this BAC stuff?

Manzilla's picture

Keep the negative hits coming. He's still smug and a rapist.

Troll Magnet's picture

Based on what I've read, it's far from an open and shut case, so I wouldn't go as far as calling him a rapist.  But I do think Assange is bit of a douchebag for teasing us with this whole "I have shit on Banks which I'll release in early 2011" and then just dropping off the face of the planet until now.  So I agree with you there.  Where's the bank stuff?

destiny's picture

assange = psy ops.....wikileaks = non event

frenchie's picture

he is zionist so better take all these leaks with caution...

Old. No. 7's picture

Straw Man. Psy-op for the coming gold re-standardization, just like cnbc. China is in a race against dollar devaluation but the USA holds the largest gold reserves. Heads we win, tails they lose. Clever.

sgorem's picture

what IF we don't really have any gold? what if China redeems/cashes/calls in all of debt they hold on US? and want it IN GOLD? we're fucked one way or another. better spend some of those 2.5 grammers and buy some more ammo cause you're gonna need it before this shit is over with. 

High Plains Drifter's picture

we have gold reserves?    where?  

Manzilla's picture

Yes I have no clue if it really happened either. I really shouldn't say that. You are correct though, he is a douche bag. I had the "honor" of hanging out with him 3yrs ago and he really was one of the most smug douche bags I've ever encountered. The guy had a serious "I'm awesome and you're not" complex. Not only was he a douche but he was a creep. There was just something about him that stunk.

Use of Weapons's picture

As opposed to your obvious neutral and totally non-involved trolling that includes the word rape. If you met him 3 years ago, where / why / for what reason?

 

Hohum.

Manzilla's picture

We have a mutual friend. London. 3.5yrs ago. I'm not trolling I'm expressing how I honestly feel about the guy. And yes, calling him a rapist with out proof is wrong. I'll remove that post. But he's still smug.

Manzilla's picture

Well I can't edit it. Live with it.

Manzilla's picture

Neutral? I never claimed to be neutral. Where the hell did you get that idea?

Use of Weapons's picture

The stupid is strong in this one.

Invest in some intarweb smarts, the beginners class is labeled "spotting sarcasm".

 

Try it.

Manzilla's picture

I'm stupid and you're a smug cunt. Hey we both win. And you should really learn how to spot it as well.

Use of Weapons's picture

Hmm.. clever pussy vrs stupid troll?

 

Thanks for the compliment :)

 

[oh, and you're shilling / trolling, so GTFO]

Manzilla's picture

It's funny you want me to take the class yet you can't spot when I'm being sarcastic. Like I said before, it was wrong to call him a rapist(I can't change it now) but he's still a creep. I'm sorry to bash your hero but I call them as I see it. He was smug, something about him was creepy and he had this "I'm better than everyone attitude". If you ever get the chance to spend a few minutes with him I guarantee you will feel the same.

Use of Weapons's picture

You're assuming that a) he's my hero or b) I've not met him or c) I share your version of humanity that would make me feel uncomfortable with the same things.

These are all very dangerous assumptions to make online, if you were on MumsNet or Reddit. ZH... I'm actually providing you with a nice gentle warning. Here be lions, tigers n bears.

 

Oh, and you're getting trolled due to total ignorance over the plays being used in the wikileaks case, and the surrounding areas. There's (very real) infowars raging as we speak - and being totally clueless is not a place to be. http://www.youtube.com/watch?v=b66u-mzfBPE&feature=related [work out the link if I believe in it or not - here's a suggestion, track down the longer uncut version, and then find out the why's / timing of their releases]

Manzilla's picture

You are assuming I don't know this stuff. I'm not doubting there be lions, tigers and bears here.

 

You want to threaten me? Bitch please. Bring that shit right to my house. Please, I beg you. If I were on Mumsnet or Reddit? Well if you were standing in front of me that would be a dangerous place to be as well.

tyler's picture

Go away manzilla!  You're not cut out for this shit. 

 

Whatever you did Durden, to fix whatever the problem was, thanks.  Ten or twelve days without zerohedge was torture.

Manzilla's picture

Ok. Just because you said so.

 

What's with people thinking they are gods? I said I was wrong for posting he was a rapist. Again, THAT WAS WRONG OF ME. But that doesn't change the fact that dude left me with a bad impression of him. So explain to me, how does that make me "not cut out for this". I didn't realize you knew me.

 

I'll just watch how you do it since you are cut out for this. Then I can say I learned from a master.

Snidley Whipsnae's picture

Manzilla... We don't know you...and, it isn't incumbent upon us to figure out when you are being sarcastic.

If you have some worthwhile thoughts to post here, fine. If you do not then you are wasting our time by posting drivel.

Skid Marks's picture

There was just something about him that stunk.

 

Mental Illness, now manslaughter?

"deplore the decision of WikiLeaks to publish the unredacted State Department cables, which may put sources at risk."

http://apnews.myway.com/article/20110902/D9PGGOR80.html

Use of Weapons's picture

If you think Wikileaks put lives at risk.... You're so clueless you've missed the joke going around.

 

A list of all of Open Leaks1' disclosures so far - also has the names of those killed from WikiLeaks' releases:

  • 1. That's Dom-Shites leak site, for the record
macholatte's picture

I guess I missed the joke too.

You have no real evidence that the release of the Wiki files has not/will not cause harm to individuals. You're talking out of your arrogant ass. It's better to at least make an effort to redact possible/potential targeting of people. It's just plain irresponsible not to do that. For all you know some poor slob is getting tortured right now because his name ended up getting published.

 

Some 250,000 diplomatic dispatches from the US State Department have accidentally been made completely public. The files include the names of informants who now must fear for their lives. It is the result of a series of blunders by WikiLeaks and its supporters.

http://www.spiegel.de/international/world/0,1518,783778,00.html

 

Inibo E. Exibo's picture

Anyone in another country who consorts with the US government should have known they were making a mistake. Snitches deserve no mercy.

goldenrod's picture

Please change that avatar.  Some people view this site at work.

Sgt.Sausage's picture

Um ... no. Fuck you.

The boobies on ZH avatars have been around here a lot longer than either you or I have. If you don't fucking like'em, don't fucking look at 'em. If your work doesn't allow 'em you have two options: (1) Tell your boss to fuck off, the boobies are glorious OR (2) wait 'til you fucking get home where it doesn't matter.

Asking the rest of us to deprive ourselves of righteous boobage makes you an Ass. A JackAss.

Now go home and be sexually repressed. Or something.

snowball777's picture

Just cover em up with your mouth, baby.

Yen Cross's picture

 I don't even need an opening sentence. +1 777

cgbspender's picture

You know, there is an extension for Firefox called Adblock Plus. You can specify custom filters for things such as avatars with boobs.

Use of Weapons's picture

You need to read better.

Current play:

Dom-Schiet [shit hill] from wikileaks gets friendly with a Microsoft employee 10 years older than him. Marries her, splits from wikileaks doing three things: a) trashing databases, b) taking data he was holding to process into databases & encryption keys and c) promising to open up a new, better leak site, Shit-hill was the sysadmin, which is why he had access to all the data / keys etc. His new name is Shit-hill-Bern. Might want to giggle over that little middle finger from the establishment for a bit.

 

Odds that he was bought - 1:2.

Upshot: a) Assange didn't trust him, and had backups, b) both sides are basically admitting that this is the encrypted BAC stuff that no longer has keys, c) his competitor site is a wash, hasn't done a single thing.

Shit-Hill has publicly stated that he held original documents (pre-processing) that have been negotiated over for a year now, and he's proud that he's now trashed them.

 

But it gets better - Assange / Wikileaks didn't leak the cables. Someone (lololol) uploaded the insurance files to bitorrent ages ago - everyone has been itching to see them ever since. Senior Guardian journalist who was allowed access did three things: a) published leaks without consent, and broke the deal with wikileaks to get a scoop (as did NYT, which is basically USA gov PR at the mo), and they've been editing them ever since to protect certain parties [Romanian government rings a bell] b) lower level member wikileaker goes to Guardian, gets job, spends time slagging off Assange [a pustule of a creep, btw] c) senior Guardian journalist publishes cash in book that slanders Assange and contains the encryption key for this file.

Everyone has been sitting around trying to pretend this never happened [and indeed, Assange contacted the US gov. and basically warned them that sources were going to go live 3 months ago. i.e. this whole fucking retarding shilling over "endangering our troops / sources / intelligence and costing lives' shit, Assange was actually trying to mitigate] until Dom-shite & the Guardian tried to pin it on Assange. Wikileaks got miffed, and so told everyone what we already knew.

Cryptome.org came out in support of Wikileaks, which is rare, given their stance so far has been "psyop" / "pretty boy honeypot". It seems that they've done some research and actually believe (partly) the cluster-fuck that has gone on.

 

Hint: the key decrypts 1 file out of 4, 3 of those being of a size to hold files. There's probably [given file size] two more large chunks - of which one is more than likely BAC's stuff, which cannot be decrypted now due to Dom-shite being turned - he's totally untrustworthy, so no-one has any idea if BAC stuff was pre-processing or encrypted or whatever.

 

Phew - clear now?

CompassionateFascist's picture

You are'nt worth junking. Assange's 1 st "rape" was an ex-CIA bitch wherein he "failed to use a rubber". #2: "he didn't call back the next day." (apparently illegal in Sweden). Assange is an epic Hero.