Gold: Have The Chinese Changed The Way They Look At It?

Authored by Kevin Muir via The Macro Tourist blog,

At the risk of alienating all my readers who view gold as a barbarous relic, I am chancing one more post to expand on my ideas regarding the correlation between gold and the Chinese currency.

Although some readers got a chuckle out of my article Gold: Come’on - Admit it - You want to own it, there was also a bunch of pushback on the idea that the Chinese were pegging the price of gold in CNY.

“Why would they do that?”

“To what end?”

And I guess I purposely left out the details, instead I choose to focus on the correlations and leave it to readers to draw their own conclusions.

And before I give you my theories as to the reasons behind the relationship, let’s have a look at how the correlation has fared since I wrote about it last.

Still trading on top of one another. In fact, it’s almost tick for tick.

Speaking of tick for tick, the great twitter account of @TickByTick_Team created a terrific chart that demonstrated the collapse in the volatility of gold priced in CNY. I have recreated using the 90-day historical volatility, but it doesn’t matter which time frame you use - the end result is that gold priced in CNY has become a lot less volatile.

I am sympathetic to the idea that China would never bother to peg the price of gold. Pegging implies that you would be willing to both buy and sell it to keep it at a certain level. I don’t believe that China has any interest in selling even the tiniest little bit of their gold reserves to keep it at a certain price.

But I do believe the Chinese are managing the price of gold priced in CNY. They have in essence provided a floor at which they are willing to accumulate gold. They don’t bother selling it when it rises above that level, but when the gold price descends into their buy zone, they are there with stacks of blues.

So why is the price of gold going down recently? Well, if we assume that China is one of the biggest buyers of gold, when their currency depreciates, their bid for gold priced in US dollars falls.

The price of gold has not been pegged in CNY, it is merely being bought in that currency. The Chinese have fundamentally changed the way they look at gold. Instead of pricing it in US dollars, they are pricing it in CNY. And they are bid. For size.

Comments

Bring the Gold Ron_Mexico Tue, 08/07/2018 - 13:16 Permalink

Quantum computing and Shor’s algorithm. Show me a blockchain resilient to that and I’m interested. It’s s fun side investment, but it ain’t gold. Nobody is turning electron sized and looting the gold from the bottom of the nearby lake. Yet, people have many ways of stealing bitcoins. Not to mention the BitCoin phase is over the Banksters got their trial balloon. Next up SDR blockchain with basket of currencies including gold. Well, after the crash they’ve set in motion of course. 

In reply to by Ron_Mexico

T.Gracchus Coinista Tue, 08/07/2018 - 14:36 Permalink

You are an abject fuckwit.

Why do you even care if other people want to put their money into PMs. That is a rhetorical question- you care because without a whole load of morons piling into crypto, you know you are down.

I once knew a guy who made a good living buying and selling antique swords and militaria. He did well, but he never once chastised me for not doing the same. We all make our own choices. Some succeed, some do not.

If you want to waste your money on speculation in unicorn farts, go for it- but do not try to rope in the saner members of this forum.

In short, fuck off and die.

In reply to by Coinista

DarkPurpleHaze Tue, 08/07/2018 - 11:58 Permalink

Here we go again with the China angle.

I've been around long enough to realize that the China or the yuan crutch has been used one way or another to predict, promise or speculate that gold will skyrocket eventually because (fill-in-the-blank) and that crutch will be leaned on for many more years by those who can't support their constant B.S. speculations (aka story telling) with anything factual (aka reality) to base their B.S. upon.

This theme won't go away anytime soon. Anyone trying to tell you what direction anything is going to go while a monumental (and just getting started) trade war is developing is so full of crap on the scale of a loaded manure spreader when they talk about metals that they'll say anything on any given day.

It's all word sophistry, storytelling and a hustle.

 

Bring the Gold LawsofPhysics Tue, 08/07/2018 - 12:39 Permalink

They haven’t been communist in a long time regardless of the name. They are some weird modern totalitarian state. They have a super powerful central state that is the supreme law, but they DO also have a free market aspect. They are something new and frankly far scarier than communism. They are exactly what “Mr. Global” is using as a template for prison planet earth. Calling them communist isn’t entirely accurate, they are far scarier than that because they do have an element of competition which fuels innovation along with a super powerful state. They seem more similar to Nazi germany ala IG Farben than they do the USSR or even 1960’s communist China. 

In reply to by LawsofPhysics

Bring the Gold Balance-Sheet Tue, 08/07/2018 - 13:23 Permalink

That’s reasonable. It sure as fuck isn’t communism. I swear to god if ZH readers can’t get it up it’s Stalin’s tomb, you know...a Communist plot. 

Seriously guys, you look like recently awakened from a 30 year coma fucking idiots. Not everything you hate is communist. Words mean things and communism means one thing only, State Control of ALL property period. Nothing more and nothing less.

Turns out things can be fucking awful and NOT be communist. Someone cutting you off in traffic is not “cultural Marxism”. Someone being a piece of shit at work, doesn’t make them a communist. A woman refusing to Fuck you doesn’t make her communist. I’m just laying this out since this is oh so hard to grasp because the partisan hack shills are out in force with the midterms coming up and 50+ years of conditioning around the trigger word communism is guaranteed to get some idiots frothing at the mouth and being sheep herder into the major parties. 

They do the same thing on the left and call anyone not hiring an unqualified black guy over a qualified white guy with a masters degree a Nazi. It’s absurd.

People are tilting at windmills fighting the last war. Meanwhile, the parasites who run things pick our collective pockets. 

In reply to by Balance-Sheet

DarkPurpleHaze lunaticfringe Tue, 08/07/2018 - 12:25 Permalink

"How can you deny that chart?"

Toast???

Lol, are you kidding me/us???

Look at a long term chart and not a short window/trendy chart dujour that tries to sell you on how right they are right now when the long term track record is terrible.

And you're right...you never heard of them selling gold until now.

That's because all you heard up until now is how the buying will propel gold/silver. And now the shills/hustlers are talking out of the other side of their mouthes about Chinese selling?

It's all B.S. and will continue to be so for more years than most people will be comfortable to even consider.

And I'm not down or anti-metals btw. I have too much and I'm over allocated and waiting...and waiting...on China. Geez.

 

 

In reply to by lunaticfringe

Bring the Gold Consuelo Tue, 08/07/2018 - 12:42 Permalink

Yep, gold is the Coup De Grace and won’t be used until necessary. They will continue to accumulate.

 

I haven’t seen any reports of gold LEAVING China...have you? Why would they cancel their own fire sale prices for gold imports by increasing the price? They will continue to buy at a discount as long as the West is that fucking stupid. 

In reply to by Consuelo

Balance-Sheet Bring the Gold Tue, 08/07/2018 - 13:21 Permalink

Goes in as metal imports with Copper and everything else returning as manufactured coins for collectors and jewelry. It has to be the right price so exports sell vigorously. In the West our Gold markets for coins and jewelry are supporting prices to this level.

At 2000. USD or higher you may see a flood of idle Gold laying around as out of style scrap Gold flood onto the market from millions of pawnshops, and people's junk boxes.

In reply to by Bring the Gold

H H Henry P P … DarkPurpleHaze Tue, 08/07/2018 - 12:43 Permalink

Oh, you want to play the "look at a longer term chart" game?  Sure, just pull up a chart of the dollar priced in gold ever since the Federal Reserve came into existence.  That'll show anybody how worthless gold is when in actuality it has held its value this entire time.  Can one say the same for the dollar in that same timeframe?  The dollar is just another failed mutation of fiat.  Being disgruntled about gold being sub-$1900 for the last 5 years will be forgotten.  Gold's biggest gains are during fiat repricings as the gains are awarded instantaneously.  We've already gone through it with the dollar two times, this third one will be a doozy for sure.

In reply to by DarkPurpleHaze

DarkPurpleHaze H H Henry P P … Tue, 08/07/2018 - 12:56 Permalink

That's not what this article is about at all. It has nothing to do with that other crutch argument...the fed and the usd and gold etc.

It's about China selling gold and how the yuan/gold is not pegged to the USD. 

Why do people automatically go into this defensive mechanism and turtleshell their positions based on the creation of the fed? It's a default position that attempts to explain everything away. It's not that simple.

 

In reply to by H H Henry P P …

Bring the Gold DarkPurpleHaze Tue, 08/07/2018 - 13:13 Permalink

Please provide evidence China has gold exiting China. Who cares what their domestic market is like or what shenanigans the government is up to (looks like a stabilization peg before gold backed bonds to me...). If you have evidence China is a net exporter I’d like to see it. If not they aren’t actually “selling gold” in any meaningful sense. 

In reply to by DarkPurpleHaze

Bring the Gold DarkPurpleHaze Tue, 08/07/2018 - 15:33 Permalink

You can show gold exports higher than gold imports plus domestic production in China? You’re full of shit because you know as well as I do that no gold is leaving China, quite the opposite.

 

I get that you’re butthurt that gold is a long term position that you can’t flip like a house. There is zero question China is stockpiling gold, unless you have some data to share that goes against the reality consensus? I’m quite keen to see it!

In reply to by DarkPurpleHaze

H H Henry P P … DarkPurpleHaze Tue, 08/07/2018 - 13:27 Permalink

Your comment wasn't about China selling gold nor the yuan unpegged to USD.  You said the dollar was not toast, and that a "longer term" chart on gold showed it's lacking.  I'm merely saying all you have to do is look at an even longer term chart of both, and the real story is shown.

Also, this single article stating how China is selling gold is not going to override the mountain of data showing the contrary.

In reply to by DarkPurpleHaze

Bring the Gold H H Henry P P … Tue, 08/07/2018 - 15:37 Permalink

Exactly. He either isn’t a stacker, or has the patience of a three year old. Gold is wealth preservation.

There are historical inflection points where gold can be sold during panic buying in exchange for real estate and other durable goods. That’s the only way gold becomes some “get Rich” type investment rather than insurance and wealth preservation.

The insurance “pay out” occurs due to the death of fiat and the exchanging of gold for RE and durable goods. It may be that is challenging or impossible, but that’s the only way gold is some sort of ticket to wealth. Oh that and buying at a steep discount to actual value as the Chinese/Russians have been doing for over a decade now. In that sense you will likely see an increase in real purchasing power during such a crisis, but you better already have food and water etc. it will only be profitable to exchange for something with long term value like RE. 

In reply to by H H Henry P P …