China


A “full-scale financial war” is raging around the world and gold is the secret weapon, geopolitical analyst James G. Rickards tells King World News today.
Rickards says China’s new gold exchange is retaliation for the refusal of the United States to restrain paper currency and help control inflation. He agrees that the exchange has the potential to explode demand for gold.
As for the proposal for Switzerland to create a “parallel” gold-backed franc, Rickards says it would create a massive case of Gresham’s Law, where everyone would dump the unbacked franc for the gold-backed franc. Indeed, Rickards says, the first country that goes to a gold-backed currency will have the only currency anyone wants, the strongest currency in the world. Swiss legislators, he adds, can’t possibly understand the global implications of the proposal.
Holes in the fiat currency dike are popping out all over the place, Rickards says, and in the face of the collapse of their paper currencies, governments will either have to convert their currencies to gold or resort to unprecedented coercion, outlawing gold or punitively taxing it and imposing capital controls.
As usual Rickards has thought things through far more extensively than most analysts. You can listen to his interview at the King World News Internet site HERE

Ignoring real estate, most people invest their hard earned money in paper things. Stocks, bonds, annuities, insurance – it’s all paper, and it sits nicely in our bank accounts and shows up on our computer screens. Halfway across the world, investors in China and India have never trusted paper investments as a store of value – and they’re converting their hard earned paper money into gold and silver bullion. Not that this is anything new. It isn’t. But the scale and speed with which they are accumulating precious metals IS new, and it’s driving the fundamentals that we believe will lead to higher prices in 2011.
Demand for the metals is literally exploding in Asia, and it’s creating shortages of physical bullion around the world. The statistics are extraordinary. China, the world’s largest gold producer, now requires so much of the precious metal (in addition to what it already mines) that it imported over 209 metric tons (6.7 million oz) of gold during the first ten months of 2010. This represents a fivefold increase from the estimated 45 metric tons it imported in all of 2009.1
According to the World Gold Council, Chinese retail demand for gold increased by 70% from October 2009 to September 2010, representing a total of 153.2 tonnes of gold imports. Yet, over the same period, the demand for gold jewelry rose by only 8%.2 There is a clear trend developing for Chinese investment in gold as a monetary asset, and China is buying so much gold for investment purposes that it now threatens to supercede India as the world’s largest gold consumer. Chinese demand in 2010 is expected to reach approximately 600 tonnes, just behind India’s 800 tonnes.3 To put that in perspective, 2010 world mine production is forecasted to be 2,652 tonnes, which means China and India could collectively lock-up over half of global annual production.
Even more surprising is the increase in Chinese demand for silver. Recent statistics show that silver imports have increased fourfold from 2009 to 2010. In 2005, the Chinese exported just over 100 million oz. of silver.4 In 2010, they imported just over 120 million oz. This represents a swing of 200 million+ oz. in a market that supplied a total of 889 million oz. in 2009 – a truly tectonic shift in demand!5
We are seeing widespread evidence of major shortages of physical gold and silver bullion across the globe. The Perth Mint recently stated that: “Demand for our coins and medallions is strong, but the biggest demand is coming from banks and traders looking for kilo bars.”6 Three weeks ahead of Chinese New Year, Asian dealers were reporting premiums in mainland Chinese gold exchanges of $23 per ounce.7 Even Jim Cramer has acknowledged the current shortage in minted US gold coins, stating on his CNBC television show in December that: “As someone who tried to buy U.S. coins in December, there was a real scarcity. My dealer reportedly just couldn’t get any coins – tried to sell me Australian bullion. Said there was a shortage. Very telling.”8
While Chinese New Year celebrations typically drive gold demand in the month of January, there are stronger forces at work here. The Chinese are fighting the resurgence of inflation. To protect their wealth, the populace is turning to gold and silver as a store of value. Precious metals ownership is a relatively new phenomenon in China, where Chinese citizens have only been able to purchase gold freely within the last ten years. Ownership restrictions were lifted in 2001 when the Chinese central bank abolished its long-term government monopoly over gold. The Shanghai Gold Exchange was then created in October 2002 to replace the People’s Bank of China’s gold purchase and allocation system, thus ushering in a new era of gold investment in China.9 Investor interest in precious metals has increased dramatically since then, and new investment products are making gold more convenient to purchase and easier to own.
One such program recently caught our eye and speaks to the new era of gold investment within China. On April 1, 2010, the World Gold Council and Industrial and Commercial Bank of China (ICBC) issued a press release announcing a strategic partnership.10 Though seemingly innocuous, this press release introduced a completely new investment product for Chinese investors: The ICBC Gold Accumulation Plan (“ICBC GAP”). ICBC GAP allows investors in mainland China to accumulate gold through a daily dollar averaging program. The minimum investment required is either 200 RMB per month or 1 gram of gold per day (equivalent to approximately US$42).11 Customers may renew the contracts at maturity, convert them into cash or exchange them for physical gold. The accounts are perfect for investors who want to accumulate gold over the long-term. While gold accumulation plans exist in Japan, Switzerland and other countries, this is a first for mainland China. Kudos to the World Gold Council for their efforts in setting up and promoting the program.
The most significant fact related to the ICBC GAP program is how fast it has captured the investing public in China. One million accounts have already been opened since the program launched on April 1st, resulting in the purchase of over 10 tonnes of gold thus far. According to press releases, the ICBC GAP plan was taken up by a mere 20% of total depositors at ICBC, and was only launched in select Chinese cities during the test phase. The ICBC bank just happens to be the largest consumer bank on earth with approximately 212 million separate accounts. If we apply some realistic assumptions and arithmetic, it’s easy to imagine how large this program could potentially become.
Suppose, for example, the ICBC GAP plan were expanded to cover all ICBC depositors, and also expanded to the next four largest Chinese banks. Let’s further assume that the gold purchases within the plan enjoyed the same rate of growth as the test phase mentioned above. If we add all these numbers together, it results in gold purchases of an extra 300 tonnes of gold per year, or over 10% of the estimated 2010 global gold production.
The implications of this burgeoning Chinese demand for the gold market are immense. If these predictions prove accurate, the ICBC GAP plan could become the single largest buyer of physical gold on the planet. Considering that the program has only been launched in one Chinese bank thus far, imagine if it were extended to other institutions or other large gold consuming countries such as India, Russia or Turkey?
Speaking from Japan, the head of the World Gold Council recently commented on the early success of the ICBC GAP plan in China: “Here in Japan, it has taken over 10 years for the gold-savings account industry as a whole to reach 700,000 accounts. It is impressive that only one Chinese bank can exceed that level so easily, within one year, without PR or active marketing in-branch.” The World Gold Council does their own arithmetic on how much gold the Chinese can consume: “In 2009, per capita gold consumption in China was 0.33 grams, up from 0.17 grams in 2002.” Based on this data total Chinese gold consumption could range from 1,000 tonnes per year or more.12 This implies that the Chinese could consume almost half of the gold produced globally on an annual basis.
The ICBC Gold Accumulation Plan and other alternate methods of investing in gold have the potential to overwhelm current supply in the gold market. If a similar program were launched for silver accumulation, in the same dollar terms at current prices, it would consume over half of the silver produced each year! In Asia, only physical gold and silver will do and unlike the supply of treasury bills, bonds or paper currencies, the supply of physical gold and silver is undoubtedly finite.
We believe Asian demand for physical gold and silver is akin to a tsunami. While precious metals prices have corrected on the paper exchanges, the inflation resurgence in Asia is quietly driving new, unforeseen levels of physical demand for the metals. While the world continues to float on a sea of paper, this massive wave of physical demand silently threatens to crash into the physical gold and silver market, potentially wiping out tangible supply.
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1. Hook, Leslie. (December 2, 2010) China’s gold imports surge fivefold. Financial Times. Retrieved on January 31, 2011 from:

http://www.gold.org/download/rs_archive/WOR5797_Gold_Invest_Report_China_Web.pdf2. D’Altorio (December 30, 2010) China’s Gold Rush. Investment U. Retrieved on January 31, 2011 from: 

3. Pearson, Madelene. (January 12, 2011) Gold Imports by India Likely Reached Record, WGC Says. Bloomberg Businessweek. Retrieved on January 31, 2011 from:
4. (December 2, 2010) Gold Imports by China Soar Almost Fivefold as Inflation Spurs Investment. Bloomberg. Retrieved on January 31, 2011 from:
5. The Silver Institute. Demand and Supply in 2009. Retrieved on January 31, 2011 from:
6. Campbell, James (January 12, 2011) Unrelenting demand for gold below $1400 – Perth Mint. Retrieved on January 30, 2011 from:
7. Ash, Adrian (January 12, 2011) Shanghai Gold Premium Hits $23/Oz, China Opens 1 Million Gold-Savings Accounts. London Gold Market Report. Retrieved on January 31, 2011 from:
8. CNBC: Buy this pause in gold’s bull run, “Mad Money” host Jim Cramer advises. Retrieved on January 31, 2011 from:
9. China Gold Report: Gold in the Year of the Tiger. The World Gold Council (March 29, 2010). Retrieved on January 31, 2011 from: http://www.gold.org/download/rs_archive/WOR5797_Gold_Invest_Report_China_Web.pdf
10. World Gold Council (April 1, 2010) World Gold Council and ICBC Enter into Strategic Partnership to Promote China’€™s Gold Market. Retrieved on January 31, 2011 from: http://www.gold.org/download/pr_archive/pdf/ICBC_MOU_010410_pr.pdf
11. World Gold Council. (December 16, 2010) World Gold Council and ICBC launch first gold accumulation plan in China. Retrieved on January 31, 2011 from:
http://www.gold.org/download/pr_archive/pdf/2010-12-16_ICBC_GAP_release.pdf
12. Ash, Adrian (January 31, 2011) Gold Shorts Beware China’€™s Million-Strong Gold Savers. Forbes. Retrieved on January 2011 from:
http://blogs.forbes.com/greatspeculations/2011/01/13/gold-shorts-beware-chinas-million-strong-gold-savers/
By Richard Russell
Dow Theory Letters
Wednesday, September 9, 2009
As the great Bob Dylan song goes, “There’s a battle outside, and it’s raging, it will soon shake your windows and rattle your walls, for the times are a’changin’.”
The battle is obvious — it’s the primary forces of overproduction and deflation vs. the Fed’s obsession (“whatever it takes”) to fight deflation and to produce asset inflation.
The one signal for rising inflation that the world understands is rising gold. The central banks do not want to see the gold signal, which tells the world that inflation is in command.
What the Fed really wants is asset inflation in housing. Housing is collateral for almost everything in the nation, and the Fed and Treasury are frantic to get housing prices heading higher.
Yesterday most assets got the message. Oil was higher, the base metals were higher, the stock market was higher, but gold (pressured by forces we know not from where) failed to close at the highly significant number of $1,000 an ounce or better. Incredibly, after being as high as $1,009 during yesterday’s session, gold closed at $999.80 — just 20 cents below $1,000.
Coincidence? Mistake? Random chance?
Hardly. To me it was obvious that the Fed did not want to see the following headline in the newspapers: “Gold closes above $1,000.”
Whatever it takes, it seems, will be utilized to hold the only constitutional money down.
When a can is placed on a stove burner, the pressure builds up inside the can. At some point, we know not exactly when, the can will explode and the pressure will be released. That, I believe, is where gold is.
You can threaten gold with forthcoming central bank sales. You can sell gold in quantity. You can smother gold with short sales. But the primary trend of gold will win out. It will be expressed today, in a month, or in 2010. The trick for us is to hold onto our position — don’t trade it, don’t move in and out with it, don’t hold so much of it that you get the heebie jeebies every time it dips $10.
The primary trend of gold is up. We’re riding the bull. The bull will try to shake us off his back. We’ll hang on.
The word is that China wants to load up on gold while diversifying out of its huge position in dollar-denominated securities (T-bonds). China’s problem is how to accumulate gold secretly without driving the price up. This has led to what is now called “the China gold put.” Every time gold backs off, China is in there to scoop up what is offered.
On top of that, China is urging its over-1 billion population to buy gold and silver.
Finally, China is now the world’s biggest miner of gold. China, in its patient way, is preparing for the future. The future that China sees is a world without fiat currency or a world in which its own renminbi is the world’s reserve currency.
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Chrys N.B. … got Gold..?
What follows is taken from Enrico Orlandini’s latest weekly missive: The Next Shoe to Fall ( in Dow Theory Analysis) and although it doesn’t paint quite a very pretty picture of things to come, it just hopefully might nudge some of you out there from your slumber into a sober awakening!..
Funny thing is, it also ties in rather nicelly with the latest Mises.org daily article called The Trouble with Democracy (which you can read HERE)
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“… So that’s the long and the short of it. We are heading into a long, cold winter and we are all naked in the sun. As long as it’s warm we feel great and life goes on, but once the temperature drops we’re all in trouble. The problem is that no one sees, or wants to see, what’s coming and that is a real shame. Everyone says the US will enter a long period of sideways movement like Japan, but I wouldn’t hold my breath. Japan had reserves! All the US has is mountains of debt and poor leadership. I am old enough to remember the Kennedy inauguration, which means that I also remember Eisenhower and I experienced Johnson and Nixon first hand. I liked Nixon and couldn’t stand Johnson, but at least he took a stand and stuck to it. In today’s world I can’t see one decent politician in the United States and let me qualify that by saying that there isn’t anyone with a good message and great communication skills the people will listen to.
Back in the 1960’s we had some really great public speakers like the Kennedy brothers, Martin Luther King, and Medgar Evers and they all died a violent death. In particular Robert Kennedy had the communication skills and a message that played well to the American public. Is it an accident they were all shot? I don’t know but I think it served as a message to the next generation of politicians that you don’t mess with the system. On November 15, 1963 John F Kennedy gave a speech in Pittsburg saying he wanted to close down the Federal Reserve and he was dead two weeks later. I don’t know if that was just a coincidence or not, but I personally don’t think so. In any event it produced a system that punished original thought and anyone who wanted to challenge the status quo. Fast forward to the present and you see the fruits of that labor, a system bloated on debt and pork that violates its own constitution almost on a daily basis.
So many paid such a high price so Americans could enjoy the freedoms they so easily cede to the Bushes and Obama that it’s scary. Fortunately there is a mechanism called a market that is so big and so powerful that no one individual, group, or government can manipulate it for very long. The current manipulation has been going on for more than seventy years and involves the biggest transfer of wealth the world has even known. In 1913 the US was the richest nation in the world and most of that wealth belonged to the American people as a whole. Then along can a very small and select group of men, under the guise of the Federal Reserve and began to transfer that wealth to themselves and a few others. The result is the largest debtor nation in the world and an uneducated population that can’t compete. Along with the wealth went the entire production base of the US and now we are service oriented, meaning we sell each other insurance.
The greed has been so extreme that it overflowed the shores of the US and permeated the rest of the world in the form of over-the-counter derivatives. Almost US $700 trillion worth of them! Those chickens will come home to roost this fall and it will be very messy indeed. The market will have its day and no amount of bad legislation will change that, and neither will the printing press. The only salvation will be gold, silver, and maybe the Swiss Franc. A couple acres of vegetables in a backyard surrounded by an electric fence won’t hurt either. While you’re at it don’t forget your own well and power source since most public utilities are antiquated and their employees may not get paid. Civil disobedience will be a real problem and I wonder just how far it will go. The Viet Nam demonstrations aside, Americans haven’t been really worked up over anything since the days of “Hooverville” and will react negatively once they figure out that they’ve been taken to the cleaners. Like all distortions, the repercussions are likely to be extreme and I suspect will lead to a new form of government.
Whether it’s framed after the US Constitution or not remains to be seen.”
The Chinese Prime Minister’s body language while addressing a message to US requesting assurances for the safety of the country’s vast US$ holdings, is so “loud ‘n clear” it leaves no room for misunderstandings….

 

From Dow Jones Newswires
via FXStreet.com
Wednesday, November 19, 2008

BEIJING — China’s central bank is considering raising its gold reserve by 4,000 metric tons from 600 tons to diversify risks brought by the country’s huge foreign exchange reserves, the Guangzhou Daily reported, citing unnamed industry people in Hong Kong.

The newspaper didn’t elaborate on the plan.

China’s forex reserves, at $1.9056 trillion at the end of September, are the world’s largest. U.S. dollar-denominated assets, including U.S. treasury bonds and mortgage agency bonds, account for a big proportion of the forex reserves.

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By Xiao Yu and Ron Harui
Bloomberg News
Friday, November 14, 2008

China, the second-biggest overseas holder of U.S. Treasuries, should increase its bullion holding to diversify its reserves because the dollar may decline, the country’s gold association said.

“China should have at least several thousand tons of gold in its reserves, five to six times the officially announced 600 tons,” Hou Huimin, vice chairman of the China Gold Association said by phone from Beijing. The group represents producers, traders, and retailers.

The U.S. budget deficit climbed to a record in October, and some investors are betting the dollar may weaken as the Treasury would need to sell more debt to finance its $700 billion financial-rescue package. Gold has tumbled 29 percent from its March record.

“There’s no doubt that gold would be attractive, as U.S. debt is likely to swell,” said Kenichiro Ikezawa, who oversees about $3 billion as a fund manager at Daiwa SB Investments Ltd. in Tokyo. “In the long term, both the dollar and Treasuries will probably weaken. It’s possible that China will buy more gold, though the country is likely to do so gradually.”

The dollar dropped 0.5 percent against a basket of six major currencies at 3:25 p.m. Beijing time. Gold declined 0.8 percent to $730.54 an ounce.

China has the world’s biggest foreign-exchange reserves at $1.9 trillion, according to data compiled by Bloomberg. It is also the largest overseas holder of Treasuries after Japan. China’s demand for gold jumped 23 percent in 2007, making it the world’s second-largest consumer.

The Asian nation may buy more gold for its reserves on concern the $700 billion U.S. bank bailout will cause declines in the dollar and Treasuries, the Standard newspaper in Hong Kong reported today, citing an unidentified person.

The People’s Bank of China spokesman in Beijing declined to comment on the newspaper report.

Zijin Mining Group Co., China’s largest gold producer, and rivals Shandong Gold Mining Co. and Zhongjin Gold Corp. jumped by their daily limit of 10 percent in Shanghai trading.

Zijin rose to 3.87 yuan at the 3 p.m. close, the highest in a month. Shandong Gold gained to 38.13 yuan, and Zhongjin Gold climbed to 29.34 yuan.

“Chinese gold stocks are probably rising on the speculation that China may buy more bullion,” said Wayne Fung, a Hong Kong-based analyst at China Everbright Securities Ltd. “It won’t surprise me if China goes ahead, as it’s not the first time the rumor has emerged in the market.”

Some Asian central banks may seek to build up gold holdings a little as the percentage in their reserves is rather low, said Dominic Schnider, commodities analyst at UBS Wealth Management Research. “But I don’t think they will go into the market and destroy the balance and push it to ridiculous prices,” he said.

Gold more than doubled in the past six years and reached a record $1,032.70 an ounce March 17 as the dollar slumped and oil advanced, increasing concern inflation would accelerate. In the past eight months, the precious metal has plunged about 30 percent as the dollar rallied, oil collapsed and the global credit crisis pushed the world toward a recession.

The U.S. dollar index advanced to a 30-month high yesterday.

“The dollar has gone up and gold come down, so if you want to diversify it’s a decent time to do so,” Larry Kantor, head of research at Barclays Capital, said in Singapore. If countries want to shift into gold from currencies, “they will do it over a very long period.”

The U.S. budget deficit climbed to an all-time high of $237.2 billion in October, spurred by the purchase of stakes in some of the nation’s largest banks, according to Treasury Department data released yesterday in Washington.

The Treasury this month said it will more than triple its planned debt sales this quarter to help finance this year’s budget shortfall. The government needs to raise money not only for the package, but also to pay for its bailouts of mortgage companies Fannie Mae and Freddie Mac.

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