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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BigDuke6's picture

Exactly
You've saved me the bother of stating the facts.
Only in Sweden, a country on a downward spiral of Marxist proprtions, do u get phony charges for fucking a groupie without a rubber.
Bullshit.

Smiddywesson's picture

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

Maybe he is and maybe he's not.  How do you feel about DSK?  I called bullshit on that little story on day one.  You have to admit, the pattern of allegations against people who upset the applecart are becoming uncomfortably similar.

(Maybe he is and maybe, just maybe, he's not.  I don't know.)

ramirez's picture

I do not give a clusterfsck if he is a rapist or not, but really, where is the so promised bank stuff.

Manzilla's picture

Why would you be ashamed? I'm young, self made rich, attractive, intelligent and I own a shit load of gold and silver. Nothing to be ashamed "on" there.

The guy is a douche bag. I can say that from experience. The rapist part is a dirty shot, I know this, but fuck it. When you walk around acting like a douche bag I'm gonna talk shit about you. And if he was sitting in front of me I'd say it to his face. I'd also slap the hell out of dude just for the hell of it. Then I'd slap the hell out of PFC Manning for being a coward. Let's sign up for the military and then put people's life in danger because I don't want to be deployed. Seriously, it's the military. What did you expect? Don't sign up for something if you can't take it. If you got a beef with the US gov'ment, I completely understand. But don't go leaking info that could get soldiers killed. That's a cowardly move if you ask me.

Use of Weapons's picture

I hope you're getting paid for this, because otherwise you're signalling your own stupidity loud and clear.

 

Pentagon spokesman Geoff Morrell has said previously that there was no evidence that anyone had been killed because of the leaks. Sunday, another Pentagon official told McClatchy that the military still has no evidence that the leaks have led to any deaths. The official didn't want to be named because of the issue's sensitivity.

 

http://www.mcclatchydc.com/2010/11/28/104404/officials-may-be-overstatin...

 

That was 10 months ago - pretty sure IF anyone had been harmed by wikileaks, it'd be front page news by now.

 

So - choice time:

A) Stupid ignorant piece of shit

B) Shill

 

?


Manzilla's picture

You must be blind. I said PFC manning put people's lives in danger. I never said anyone was killed. And your right nobody has been killed. I'll choose C.) Use of weapons is a cunt.

 

Nope. I'm not getting paid for this. Yes I am stupid.

Use of Weapons's picture

Look around a bit - no-one is going to white-knight you here.

 

Go swim in safer waters.

Manzilla's picture

Where would you get the impression that I want to be "white-knighted?" I may be stupid but I'm not dumb enough to think that if I say something like this on this site that I'm gonna be cheered on. Why would I want to swim in safer waters? Do you think I'm scared of what people may post? I could care less. I'm gonna park my ass right here and say bring it on. I swim in dangerous waters for a living. Why would I stop because someone is trying to make me feel bad? Ha!

 

I can take whatever you throw my way and I'll do it with a smile. Besides I wouldn't call this dangerous waters. If you're supposed to be the big bad shark in these waters I guess I'm supposeed to be scared, eh? Can you feel my fear? I'm shaking.

 

Wow you really scare me.

Manzilla's picture

Oh my god I'm so scared. Seriously, I'm terrified. This is the point where I run away crying.

Yen Cross's picture

Hey Hop Sing, say hello to Kim Dick Cooked!

DoneThis2Long's picture

LickyDicks Assange is a hypocrite.

Has that douchebag published anything - we did not already know - harmful in any way to the soviets, chinese, iranians, venezuelans et al, or is he allergic to led, among other chemicals, made in, and personally delivered by agents of, the respective countries? If he was such a fucking proponent for 'openness' he'd expose all of the crooked governments, not allegedly just the American. I somehow have that nagging feeling that the aforementioned adversaries .... oh fuck it, call them what they really are .... America's enemies, make us look like Snow White. Is anyone here stupid enough to believe those fuckers are playing the game while skipping & hopping along the high moral ground all the while wearing white gloves and a spit-shine shining armor, playing it by some unwritten rules??? If so, please raise your keyboard ..... higher .... now hit yourself in the head till you can't take the pain anymore!!!!

The day Assange, puts forth the effort, and produces the results, exposing corruption surrounding all, or most of the Global political players, I'll be among the first to tip my hat and contribute $100 towards his funeral protection. Otherwise, anything short of that, demonstrates he is nothing but world class hypocrite many levels beneath those he is objecting to, and attacking, since he is play games with the American Nation's, and American people's welfare, just to stroke his personal ego and perhaps score some points with America's enemies. The fucking brilliant savant, in the same sentence proclaims near sainthood as a proponent of "the best defense against exposure of secrets is having no secrets" (or some such garbage) yet his sources, and methods of gathering information are ......aaahem .... secret. He can't have it both ways. If he is such a devout proponent of the 'open process' tell the prosecutors from A>Z how did you obtain ALL of the secrets and information. Anything short of that, thanks for proving to us what a excrement he is. BTW, I am sorry if I do not buy into the bullshit story about having safeguards in place so LickyDicks does not gather info about those feeding insider info/secrets. He obviously failed to safeguard the shit that just got exposed w/o his wink/nod/and opportunity to run with the duffel-bag with gold bars .... or do you take Diamonds ????

Wasn't the shit just released supposed to have been his 'ace up the sleeve', whereby he was the holder of the key to the 256 bit encrypted file, which was to be used if his sorry ass and worthless life, was in danger ???? What now genius?

Bottom line: stop your preaching openness, and practice it along with fairness. Expose all of the global assholes. The world is eagerly awaiting your valiant and noble efforts in obtaining and releasing of documents such as outlined above. Some of us, will be happy even with documents from the french, germans, hell anybody ..... the Boys' Scouts troop 59 meeting details.

Breathlessly awaiting news of your death more enlightening information and best wishes.

kahunabear's picture

Yes, we will be in quite a pickle if the world collectively opts for gold over the paper Ben Wanker and both political parties are trying so hard to destroy.

Writing's on the wall. Just ask Charlie Evans.

mt paul's picture

in trust

be gold...

yabyum's picture

Lord knows thay have plenty of dollars to buy their gold with.

sqz's picture

Money is gold, and nothing else.” JP Morgan, 1912

nope-1004's picture

"Our worthless fiat must be maintained as the reserve currency at all cost, so manipulate gold downward is our focus."  JP Morgan, 2011

There, brought the quote up to date.

 

lunaticfringe's picture

This all makes perfect sense. I just don't have enough money left over to buy any AU. I don't know if you've noticed but the shit is already pretty expensive and more than a couple of people are already priced out.  Am thinking of melting down a couple of crowns.

Manzilla's picture

Expensive? Ha! That's a good one.

hedgeless_horseman's picture

...the shit is already pretty expensive...

Expensive?  Stop driving forward while looking in the rear-view mirror.  The USD is what is expensive, now, relative to where it will be in a few years.

Troll Magnet's picture

That's what most people say when I talk to them about owning gold: "It's too expensive!"  And it's true.  $1,800 - $1,900 per ounce isn't cheap when you consider that most people's wages have remained stagnant for several years now.  Maybe that's how TPTB wanted it all along.  Fuck middle class and make sure they can't afford gold.

Cliff Claven Cheers's picture

You can buy gold by the gram  @ $72.00, much cheaper way of getting in.

http://www.gainesvillecoins.com/products/157733/pamp/credit-suisse-1-gram-gold-bar-.aspx

or 2.5 grams @ $165.00

http://www.gainesvillecoins.com/products/154669/pamp-suisse-2.5-gram-gold-bar.aspx.

The Pamp is also in its own assay cert and all have an individual serial #.

lasvegaspersona's picture

The 'message' that gold will be the new best wealth asset has been 'out there' for several years. Not that it is just good but that it is the best and only and that what is coming is inevitable...how much more info do people need?

Not to be in gold is the biggest mistake that anyone will make in their lifetimes. 

That it is expensive now will be the punchline of many a joke in years to come. ha ha

DoChenRollingBearing's picture

@ Troll Magnet,

Gold IS expensive, but perhaps that is as it should be.

When I got my first ATM I was able to withdraw $300 (some 20 years ago?).  Typically that was about enough to buy 1 oz Au.

Now, I can take out $500 a pop.  Now it takes me 4 ATM withdrawals to get an oz...

There is a case to be made that gold SHOULD be very expensive!  And here's they guy who makes the most radical case:

fofoa.blogspot.com

Required reading for those seriously interested in gold.

EDIT:

You can buy (fairly easily here in the USA) gold coins as small as 1/10 th of an ounce.  Cost you only about $200.

Sgt.Sausage's picture

"... most radical case ..." ?? FOFOA ?!?!??

You have far yet to walk down the trail, young traveler.

 

 

DosZap's picture

DoChen,

You can buy (fairly easily here in the USA) gold coins as small as 1/10 th of an ounce.  Cost you only about $200.

Yep, if your prepared to bend over, and have some vaseline for the prems.Usually at least 8% or more on thr smaller denom coins.........and you know the reason, fewer made, and dies wear out just as fast, and cost just as much(if not more to make).

Grimbert's picture

My local coin shop sells all bullion coins at 10% above spot and no tax. They usually have krugerrands, sovereigns, half-sovs. The last load I got were 1/10 krugs and a quarter sovereign (tiny). I don't pay any more for getting smaller denominations.

Troll Magnet's picture

oh, i'm long physical and have a decent amount of stash already ... but not enough .. never enough! i was just talking from an everyday dick and jane's perspective. when i tell anyone they should buy some gold, they almost always say it's too expensive. in theory i know it's not that expensive yet. but i know what they're saying and i empathize, that's all.

Sudden Debt's picture

Take for example a gold sovereign. 450 dollar.

At that price, everybody can at least buy 1 per month.

That's not expensive.

As long as everybody is still able to buy one each month with their savings on their paycheck, it's not expensive.

It does get expensive if it takes you 6 months of savings to buy one.

 

cowdiddly's picture

They make precious metals all the way down to a 1/2 gram in size. In in India they have even went down to selling gold leaf flakes for small investing.

At120's picture

Maybe in Belgium, but $450 is a lot of people's rent here in the US.

Sudden Debt's picture

In Belgium, you'll never find anything for 450$.

Maybe a student room.

rents for a small appartment are between 750$ and 1200$ (without costs like elect., water, maintenance....)

rents for a house are between 1500$ and 7000$

 

At120's picture

No, what I'm saying is that most Americans don't have $450 in discretionary income per month, unlike in Belgium.

 

 

pods's picture

And that is why the semi-precious metals will be needed about a week after SNAP cards no longer work.

pods

Piranhanoia's picture

Why is everyone so cavalier about using such a dirty word?

StormShadow's picture

That's because Belgium does not have a govt to take all their money

DosZap's picture

SD, the reason is Belgium is a SMALL Country........................in the US we have many more options, where to live, and what too pay.

Utilities here are 99% of the time separate also.

And can cost far more than rent.

sgorem's picture

in the USSA we have thousands of bridges. most come with a free concrete floor and no utilities.