China has imported through Hong Kong over 2,200 tons of gold over the last 2 years. This amount is roughly half of the entire worlds’ production (excluding Russian and Chinese production which does not get exported) going into just one country alone. This does not take into account demand from India or the rest of Asia. It does not take into account European, North American, South American, African nor Australian demand. Just one country on one continent has spoken for 1 of every 2 ounces mined over the last 2 years. These 2,200 tons does not even take into account gold that the Shanghai exchange has delivered which is another 1,750 tons which accounts for nearly the rest of ALL mined gold over the last 2 years.
So where is all of this gold coming from? We know that COMEX and GLD have bled out 700 tons or so over the last year and we “don’t know” what happened to 1,300 tons that the Bank of England no longer shows as in its possession. As a side note, how is it that all of this gold (weight) can get shipped all over the world but a measly 300 tons that Germany wants back is “just too heavy” and will take 7 years for the NY Fed to deliver? In any case, massive amounts of gold have been bought AND delivered over the last few years…while the price has gone “down.”
I think that the best way to put this in perspective for you would be to simply call it a “going out of business sale!” Think about it for a moment, whenever you see a company go out of business…what do they do? They SELL …and they sell at a discount to boot! Isn’t this exactly what we are doing now? We are selling gold (and silver) at or below the cost of production. I don’t know this for a fact but I would personally bet that some sort of deal was made 2, 3, or 4 years back where the Chinese told us that we either sell “x” amount of gold to them at then or lower prices or they would blow up the game. Laugh or call me a nut case, the Chinese have known full well that we are (and were) mathematically bankrupt, as long as they could still “spend” their dollars on “stuff” (including gold) then why wouldn’t they string it along as long as they could? I have said and will continue to say that when the very first ounce of gold that China orders and tries to pay for but does not get delivered will be the very last day that “normal” continues.
The above has spoken to what “has” already happened. The question now is how much longer can it continue to happen? Where will the gold come from to deliver? The Chinese show zero signs of slowing their purchases, the Indians are now paying over a 10% premium to smuggle gold into their country and the rest of the global demand shows no signs of slowing. This is a mathematical conundrum with only one answer…the price MUST rise to ration demand, preserve supply and actually “clear” the market. Something has to give. Demand cannot exceed supply forever because supply will vanish. The ONLY thing available in Mother Nature’s arsenal to balance out true supply with actual demand is “price.”
“Price” as you know has been a funny duck over the last couple of years and has been perverted. The dollar price of gold has gone down as demand rose. This is impossibility except for one thing, as I mentioned above, if a deal was struck to “buy time” and prolong the game. It is THE only thing that I can think of. You can tell me that it’s impossible, unthinkable or inconceivable but please consider the motives for both sides. We want the game to continue and China wants as much gold as they can get their hands on without upsetting the markets.
Speaking of “upsetting the markets,” China seems to have ALL of the cards in that department. They can destroy the Treasury market at will. They can destroy the dollar and its use and utility at will. They can obviously blow the metals markets to shreds easier than either the dollar or Treasury market. They have over $3 trillion of Treasuries and dollar reserves, a mere 1% of this figure amounts to $30 billion. (While we push $85 billion more per month into the system via QE which is roughly enough to buy every single ounce of gold that is mined in the world in one year). $30 billion could buy up nearly 40% of annual production. It could nearly clean out ALL of GLD and COMEX dealer inventories…and this is JUST ONE PERCENT of what China is sitting on. CHINA ALONE and no one else!
Do you see? Do you see just how carefully balanced this game is now? Do you see how close to going nuclear this situation is? This is not about gold going to $1,500 or $1,900 or $5,000 or any other number. This is for ALL the marbles. You will either have it or you won’t. “Price” will not ever again be “decided” in the paper markets of N.Y. or London. China will spring up a gold backed or a ratio currency and TELLS the world just how many dollars are required to purchase and have one ounce of gold delivered. While we are completing our “going out of business sale,” China is filling their coffers. They (along with Russia, Germany and others) will impose a “reset” on the U.S. where we have no seat at the table and no say so in what is decided. Why? Because “he who has the gold always has and always will make the rules.” They clearly have it and we will clearly not after our “sale.”