"Not only is China ravenously buying up all the physical gold it can get its hands on….more importantly, it is letting the world know it is buying up all the physical gold it can get its hands on [this time] .- ZeroHedge Aug 8, 2023

TL;DR

• China’s 2023 purchases of Gold , the first since 2019, have been very public.
• China’s liberalization of Gold ownership amongst its citizens has grown
• China’s leaders, once divided on internationalization for the RMB are now on the same page having seen the risks of not liberalizing ownership now outweighing the risks of doing one.

Sections:

1. The Yuan is Coming Out
2. China Holds (Even More) Gold Through its People:
3. China’s Dilemma: Internationalize or not?
4. Pro-Internationalize Faction:
5. US DOLLAR HEGEMONY EXAMPLE
6. Anti-Internationalization Faction:
7. Problem Solved Before the BRICS Summit:
8. Brics Summit Marching Orders
9. Conclusions Part 1

Part 1: China’s Dilemma

Authored by GoldFix ZH Edit

What follows is a jumping off point1(as opposed to a solution-set) for further analysis in what has become a dynamic situation subject to much discussion in the metals community. It also seems to be (strangely) affecting every market in the world *except* US Comex Gold prices

The Yuan is Coming Out

Pursuant to its responsibilities in the BRICS community as well as its own national goals, it is believed China has taken the position it must finally internationalize its currency more. Until recently, internationalization of the Yuan was a non-starter in China. Yet, as of June 2023, the PBOC began taking public steps to make the Yuan internationally ready.

 

With RMB liberalization, comes risk of predation. China will, either implicitly or explicitly back its currency at least partially with Gold as a bridge off the USD and to assuage fears of its BRICS counterparts. This is consistent with behaviors surrounding the BRICS summit and their desire to create a kind of BW3 agreement for regional natural resource trade sans the USD.

China Holds (Even More) Gold Through its People:

Recently, based on events surrounding the BRICS Summit in South Africa it had become clearer China has an increased (and very publicly stated) appetite for Gold. This appetite had been consistent in 2023 at the nation-state level for sure. While bigger than normal, it is not news to most.

China Official Gold Purchases Through August 2023…

China had not added to official gold reserves since 2019- Via ZeroHedge

However Chinese policies governing gold ownership by citizens were also changed. Permissions facilitating physical gold purchasing by citizens electronically were put in place. And there is ample evidence the people are buying Gold and Silver. Even more strangely, China’s state-controlled press is extolling the virtues of owning Gold now.

About 2 months ago we were alerted by a mutual that China was connecting their people’s RMB bank accounts with the ability to purchase physical gold directly. Last week that connection was established.

From China sends ripples through the global gold bullion market, and no one notices

The PBOC opened the facility for citizens to convert renminbi cash savings held in the public’s own bank accounts to be converted into physical gold at the click of a button….

What is also impressive about the gold savings scheme is that physical gold can be withdrawn from the Shanghai exchange on a t + 0 basis, which is immediate. Therefore, these purchases constitute real bullion held in the name of each client's personal account rather than unallocated bullion.3

The net effect is something discussed in this space several times. China has much more Gold on its balance sheet than currently shown. In 2016 when studying their market structure we read a comment by a Chinese PBOC official that was intriguing.

When asked how much Gold China has, the official’s response was “China owns Gold through its people”-Source

Our admittedly biased Western conclusion back then cynically had been China will confiscate its citizens’ gold if need be. But that was not the point he was making4. The point missed then was China has much more Gold than we know5

When the Southeast Asian financial crisis hit in 1998, people in Taiwan, South Korea, and Hong Kong all enthusiastically donated gold to support their countries to weather that crisis and rid themselves of the IMF.

One of our mainland sources believes the top leaders of the Chinese Communist Party paid close attention to this and concluded their own people could also be counted on to exhibit that kind of nationalistic support as well. This was at the forefront of their thinking as they decided since then to liberalize Gold ownership among their own people starting in 2001.

For perspective, German citizens did the same in 1914 by donating their Gold to the country and receiving an iron ring in return

On one side of the ring it reads "Hab Ich in Schwererzeit ihm Gold fuer dieses Eisen" Translated: In hard times I gave him gold for this iron" the word "Him" indicates the Fatherland.

Next: how the internationalization dilemma may have been resolved…

China’s Dilemma: Internationalize or not?

The Dilemma: Enable growth via internationalization and risk foreign attacks on the currency and therefore the nation itself (as has happened throughout history)…

…or remain a managed currency protected from too much foreign intervention and risk falling behind in global development due to a lack of international capital— and continue to be subject to the hazards of USD monetary hegemony and military policy.

Pro-Internationalize Faction:

Xi Jinping is by all accounts the person leading this faction and is considered to be the more Progressive person politically in China.

China’s biggest shortcoming, the argument goes, is that the RMB has not been internationalized. Therefore, China’s inflation and debt cannot be exported/ financed and can only be borne by itself. In this way, China will have huge obstacles to truly rise as a powerful independent country.

Without international money, it is impossible to be on equal footing while other powers benefit from them.Therefore, without internationalization.. China’s growth would be severely limited.

US DOLLAR HEGEMONY EXAMPLE

The U.S. dollar is the only real reserve currency in the world, so the United States has “endless” money. One reason the United States can start a war is that it has a money printing machine to support such a war while it extracts resources from others to fight said war.

If China lets this persist, they will eventually succumb to their self-imposed limitations. Joining China’s internationalization faction are the many BRICs nations now looking for an international replacement for the USD as well.

U.S. Treasury Secretary Janet Yellen bows to Chinese Vice Premier He Lifeng at the Diaoyutai State Guesthouse in Beijing, Saturday, July 8, 2023. (Pedro PARDO/POOL/AFP)

This is important as things started ramping ( DX, SGE Gold Premiums, Treasury selloff etc) up post the August BRICS summit, and really as far back as Janet Yellen’s July poorly exeecuted visit to China to discuss trade and Treasuries.

Therefore, Xi Jinping has become determined to promote the internationalization of the Yuan likely beyond the confines of a regional currency solely for natural resource trade among friendly nations. The RMB must liberalize itself if it intends to be used and trusted by trade counterparts

Anti-Internationalization Faction:

Zhou Xiaochuan, is the main figure who opposes the internationalization of the RMB, on the grounds that he wants to safeguard the purity of the RMB and prevent international capital from attacking the RMB… as it has done in the past. Zhou Xiaochuan can be viewed as Establishment/Traditionalist among his peers.

Problem Solved Before the BRICS Summit:

In June of this year, at the annual Lujiazui Financial Forum in Shanghai, Zhou talked about the internationalization of the RMB for the first time, indicating that the momentum of the RMB has begun to enter the practical stage.