China buying gold like crazy both over the counter and under the tablePosted on — Leave a comment
The bears have been carping over the fact that Chinas March addition to its central-bank gold reserves is the smallest increase since Beijing began announcing updates last year.
The fact that Chinas officially reported gold holdings rose by only 0.5%, from 57.50 million ounces to 57.79 million ounces (or nearly 1,800 tons), therefore signals that demand there is slowing, the media would have us believe.
But anyone with an eye on the larger long-term trend can see through the smoke and mirrors of the gold bashers in the mainstream media.
China lies, says expert: West Shore Funds strategist Jim Rickards has summed up Chinas gold-buying practices on numerous occasions, most recently on Bloomberg TV.
The thing you have to understand about China is theyre the largest gold producer, so they have 450 tons (per year) of indigenous output, he said. So they dont have to import all the gold they want, and (yet) they are importing enormous amounts of gold.
The bottom line for Rickards? China lies about their gold holdings. You can look at Hong Kong exports and mining output as far greater than what the Chinese government says they have. So theres a lot going on thats not revealed.
Aiming for 3,000 more tons: In fact, Rickards argues that China is on course to buy an astronomical amount of gold in coming years. Chinas out to buy another 3,000 tons to reach parity with the U.S., Rickards speculated. It would be 10% of all the official gold in the world. But thats why they dont talk about it. If you were out to buy 3,000 tons, you wouldnt want anyone to know it because the price would go up. The United States has 8,000 tons; China has (between) 4,000 and 5,000 tons, Rickards added, implying that Chinas true bullion holdings are much higher than its officially reported tonnage. They need another 3,000 tons to have parity so when the system collapses theyll have a good seat at the table. Think of it as a poker game: You want a good pile of chips when you sit down at the table.
Some analysts believe the next financial crisis could lead to a reset of the global financial system, in which the dollar would cede ground to Chinas yuan currency (with its implied gold backing) and/or an increasing role for the IMF monetary unit known as the SDR, or Special Drawing Rights. Thus, a huge amount of gold reduces dollar exposure while also bolstering the Chinese yuan as an alternative.
Aggressively scouting for overseas mines: A recent Wall Street Journal article titled China goes prospecting for worlds gold mines bears out Rickards argument about Beijings subtle gold-acquisition strategy.
Chinese gold miners are aggressively scouting for overseas acquisitions, encouraged by historically low gold prices that could help them scoop up assets cheaply, the article noted. If cash-rich Chinese gold miners embark on an asset-buying spree, China could reduce its dependency on other international producers for supplies and increase its heft in global gold markets.
The CEO of Sprott Asset Management confirmed the trend in a comment for the story. China has five to six gold companies. I have been in touch with all of them, and they all have plans for increasing assets overseas, said Peter Grosskopf.
3rd Chinese bank wins London role: Meanwhile, even as it builds up its massive Shanghai Gold Exchange by offering yuan-denominated contracts and inviting foreign bank to participate, its also jockeying for an increasing role in the Wests markets.
The Intercontinental Exchange, one of the largest exchange operators in the world, has just announced that a third Chinese bank the Industrial and Commercial Bank of China (ICBC) has been approved for a role is helping set the global benchmark gold price in London, otherwise known as the LBMA Gold Price.
We welcome ICBCs participation in the LBMA Gold Price. ICBC brings the total to 13 direct participants, a quarter of which are Chinese firms, said ICE President Finbarr Hutcheson. The continued growth and interest of firms to become direct participants demonstrates the global significance of the LBMA Gold Price benchmark and the importance of the auction as the key point of liquidity for physical spot gold.
I am very pleased to welcome the third Chinese bank to join as a direct participant in the auction process, added the London Bullion Market Association s chief executive, Ruth Crowell. This takes the total number of participants to 13, seven more than when the LBMA Gold Price was launched on the 20 March 2015. This demonstrates the international appeal and liquidity of the auction.
Buying an awful lot of gold: Thus, Chinas role in setting prices continues to grow. From going straight to the source of overseas gold mines through its state-owned firms, while gaining a foothold among Londons gold market makers, Beijing isnt turning its back on the yellow metal, no matter what you may have been told by the mainstream media.
Kenneth Hoffman, Bloombergs expert on precious metals, also doesnt buy into the anti-gold propaganda. Right now gold has everything at its back, he recently noted. Whats been holding gold in there and then really maddening the bears is there has been a bid for gold out of China. The Chinese love gold, theyve been buying it like crazy, and theyve been constantly in the market. Particularly every time gold has had a leg back, the Chinese always step in and buy an awful lot.