China’s Massive Holdings of Gold Bullion. Is the West Financially Bankrupt?
Alisdair Macleod of Goldmoney.com in a recent article
suggests China may already have accumulated between 20,000 and 25,000
tons of gold prior to 2002. Please read this very carefully as it
makes very good sense and puts a piece into the puzzle which was missing
for so long. Let me also add, if this turns out to be true then it is
THE biggest financial news since August 15, 1971 when the U.S. defaulted
on the gold standard.
Macleod believes that China has been playing possum
regarding their gold reserves. If you recall, China announced in 2009
they had accumulated a whopping 1,054 tons of gold. The news at the
time was a huge surprise and led to bullishness in the gold market as
China was then a confirmed buyer. This total vaulted them into the
major leagues of gold hoards. If Macleod is correct about holdings of
20-25,000 tons AS OF 2003, why would China want to “lie” about how much
gold they have accumulated? It is important to understand the mindset
of the Chinese and the deep rooted thought process instilled in them by
General Sun Tzu. “Deception” is a core strategy to war, under this
category would come the thought “help your opponent in his
underestimation of you”. Why would the Chinese announce true or huge
holdings if it was their intent to continue hoarding? They wouldn’t.
I wrote several months back regarding China’s gold holdings
and identified at least 8,000 tons, but my calculation was ONLY from
2009 forward and assumed the 1,054 tons to be accurate. I hypothesized
that if you added the 1,054 tons announced in 2009, plus 3,000 to 4,000
tons over the last 2-3 years and then add in another 2,000 tons of
domestic production you could easily see 7,000 tons without anything
from 2009-2011. I postulated maybe another 1,000 tons over these three
years and arrived at 8,000 tons. Keep this number in mind for a
calculation later.
So, is it even possible for China to have accumulated as
much as 30,000 tons over the 20 years from 1983-2002? I think it’s very
possible and here’s why. This would mean China needed to purchase
1,700-2,000 tons per year out of a market that was producing only
slightly more than 2,000 tons per year. From a monetary standpoint,
this would only have been $20 billion-$25 billion per year as gold
averaged around $350 pear year during this timeframe, a sizeable sum
back then but remember, China was attracting foreign “hot” investment
capital and they were running a trade surplus every year. From the
standpoint of whether or not China could have afforded this, I believe
yes it was possible.
The other side of the coin is whether or not this “size” of
gold could have been available? Is it possible for China to have
purchased 20,000 tons and at the same time have the price dropping in a
20 year bear market? I think it is for several reasons. First, we know
for a fact that many Western central banks were net sellers (The
Washington agreement for example). We also know about mining companies
and central banks leasing gold (which gets sold into the market) from
Frank Veneroso. He estimated a total of between 10,000 and 16,000 tons
leased back in 2002. Central banks for the most part were asleep to the
fact that gold was money, even the Swiss sold a large portion of their
gold. A couple of other anecdotes are the Germans and the Italians. It
has been thought for years that LTCM’s was short 300 tons or more of
Italian gold they had leased. Also, why can’t Germany repatriate her
gold from the N.Y. Fed?
Now for the big question, “how could the price have been
dropping if China was such a big buyer?”. First, could China have just
stood “under the market” all along and absorbed the leasing and sales?
Is it possible that China (via proxies) NEVER ever “bid” up for gold?
Could they have just stepped aside while the market was being capped
(some of you may remember the $6 rule, same as the 2% rule today) and
waited for the daily raids to accumulate positions? Could they have
even been part of the paper shorts to depress the price? Did they maybe
lose money on the paper side in order to accumulate the physical
product? Some of you may even remember Jim Sinclair speaking of “Hung
Phat and Dr. No” ten years ago or more, …maybe of Chinese origin?
There is one more source of either supply or demand for
gold we haven’t talked about yet, the Arabs and in particular the
Saudis. Alisdair Macleod hypothesizes that the Arabs were big buyers of
gold between 1983 and 2002, Early in the 1980′s they may well have
been. But what if they were actually net sellers over the entire time
period? What if the U.S. somehow convinced the House of Saud with a
“deal they couldn’t refuse”? We have been the protector of Saudi Arabia
all these years, is it possible we told them that unless they released
tonnage, our “protection” might disappear? I’m just thinking out loud
here because if China were to accumulate such large gold tonnage, it had
to come from somewhere and that “somewhere” had to be a combination of
mine supply, central bank sales and what ever other sellers that could
be coaxed. I also would like to mention that throughout the 80′s and
90′s many Arab children were educated in Western universities, were they
taught of gold’s new “barbarous relic” status and helped pry some of it
loose from the older generations?
Earlier I mentioned my figure of China accumulating 8,000
tons since 2009, if we assume Alisdair Macleod is on to something but
cut his estimate in half to 10,000 tons …we have a number of almost
20,000 tons or well more than double what the U.S. “claims” to have!
Another little tidbit of information is that China has allowed their
population to purchase gold since 2003, why would they do this? Did
they as Macleod asserts have their sovereign fill and then decide it was
time for the population to save in gold? Was China actually more
capitalistic than we ever believed and played possum for years while
accumulating gold? I believe this is very possible.
I do want to mention that if this is true, then our theory
that China via proxies is the stubborn long in the silver market who
refuses to go away has much more credibility. China is said to have
leased 300 million ounces of silver (maybe even 600 million or more) to
the U.S. back in 2003. The U.S. ran out of silver back then and China
had it to lease. Did China lease this silver in order to continue their
drain of Western gold? Have they had their silver returned to them or
are they now angry because they were stiffed? Did they sacrifice silver
for the real crown jewels, our gold? China has all new infrastructure
and even ghost cities already built. Who was the fool when we were
laughing at them for building these ghost cities? Was the West just
plain dumb and sold off all of their gold or was it treason?
To finish I want to point out the obvious. If China has
amassed 20,000, 25,000 tons of gold or even more, what does it mean? It
means the West is financially bankrupt as by process of elimination
much of this gold has had to come from Western vaults! It means that
money and power has shifted East right before our very eyes and under
our noses. It means that China can price or value gold at any price
they would like …and in any currency they’d like. It means we will be
living in a China centric world where the “rules are made by those who
have the gold”. It means the U.S. (and much of the West) will be
relegated to nearly immediate 3rd world status. The danger of course is
in today’s world, if this really was a miscalculation by the West, a
very nasty and game ending war could break out. I don’t believe we will
have to wait too long to find out if China did in fact play possum as
Alisdair Macleod may have now let the cat out of the bag! As I said at
the beginning, this could be THE biggest financial revelation in over 40
years!
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