Tuesday, February 5, 2013

China's Huge Progress in Gold Backed Yuan/Renminbi

Back in November in a post titled, "China Prefers Gold to US Treasuries" I noted China had imported a massive 582 tons of gold year to date in 2012. I followed up last month with a post titled, "Yes, China Will Back their Currency with Gold", where I described how China is preparing for the destruction of the US dollar as well as Western fiat currencies. Today, I have an update on China's total gold imported from Hong Kong. But before I do I want to point out two things:

  1. The figure below does not include China's annual mining production. China is the world's largest mining producer of gold and not one ounce is sold in the global market but rather "added to the vault". There is no information on how much gold is mined each year by China.
  2. China likely buys gold quietly on the world market through front companies to obscure the ultimate buyer. There's no way to know if the figure below would or would not include these purchases.
Therefor, the figure below is extremely conservative and likely massively understates the amount of total gold acquired through both mining and purchases.

Below is a graph from Zerohedge:

This means that for all of 2012, total China imports of gold have hit a staggering 834.5 tons, double the 431 tons in 2011, and that the PBOC's determination, whose official holdings are still a laughable 1054 tons, when in reality they are likely 3-4 times greater, to convert to a commodity-backed currency the day it decides to become the world's reserves currency, as we predicted back in 2011, is as steadfast as ever. Recall from the December 2009 edition of China Youth Daily, which we reported previously that State Council advisor Ji was saying "that a team of experts from Beijing and Shanghai have set up a "task force" last year to consider growing China's gold reserves. "We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him."
This was in 2009. It is safe to say that the official (not reported) Chinese gold holdings are now around 4-5,000 tons, or 4x-5x more than the IMF number.

All of this in a year where the price of gold barely rose at all!! From this I believe we can draw one of two conclusions, one of which I pointed out in one of my first posts on the is blog:

  1.  Either China is taking advantage of an explicit policy by the US or Western central banks to suppress the price of gold, by buying massive gold at suppressed prices..
  2. Or, the US Fed has an explicit arrangement to sell China gold as compensation for the massive losses they will incur by holding US Treasuries as the US is devaluing the dollar through ZIRP & QE.
Either way, the gold price does not reflect the massive global demand for physical gold.

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