Alisdair Macleod of Goldmoney.com put out a piece last week which 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 per 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 whatever 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 decided 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 foolish 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!
Hi Bill;
That thought has been on my mind each time i see a new article on ‘How much gold does China have?” Hey, it would make sense if china is accumulating Trillions in US debt, they would try to hedge that liability with some good honest metal….and it would not take much investment to acquire 20,000 tonnes of gold..(relative to Trillions). I thought at the time “its a mugs game”. Who cares how much they have accumulated? -Once they have critical mass, they will do whatever they planned to do …which is where we should focus our thoughts.
they could have bought this much with less than $300 billion.
Bill, no doubt the Chinese have been stacking for some time. Hopefully they pull the plug on the USD before the psychopaths in Washington go nuclear somewhere to cover up their treason. I understand it is hard to source physical in
size (sovereign). Guessing that we’re at the bottom of the barrel.How is it supply & demand deficits have taken more of a strangle hold in the retail world? I know we’re just little guys in the grand scheme of things compared to sovereigns. Why don’t the Chinese have proxies in the retail world as well? Couldn’t they just call MF & say we’ll take all you have? Also, how do think this months Swiss gold referendum vote will play out? Is this recent beat down in metals an attempt to influence the vote? Do you see this vote being rigged like the Scottish?
yes, probably rigged. The Chinese are not interested in cleaning out retail as there is not enough available to make a difference. This game is being played out on a global scale.
Bill, very interesting article. China undoubtedly has far more Gold than anybody expects. They have planned this for decades knowing that the day would come where the Western Central banks will be completely vulnerable with little to no Gold.
I know you know Chris Powell pretty well and I came across this short missive from Chris in which he sounds almost defeated in stating that we may not see the end of the manipulation for decades:
– defeating them may take decades longer. But eventually the rest of the world will pull the plug on the system, having recognized that it exploits them.
I may not live to see that day but younger people might.
Chris Powell
Here is the full article:
http://thenewsdoctors.com/from-gatas-letter-bag-is-all-this-market-rigging-real-is-gata/
http://thenewsdoctors.com/from-gatas-letter-bag-is-all-this-market-rigging-real-is-gata/
What are your thoughts on this? Why do you think he sounds like we should resign ourselves to the fact that the manipulation will go on for decades. Surely he must realize that they must be nearly out of ammo?
he will live to see the day.
I recently saw another interview with Bill Murphy and like Chris he also sounded very deflated. It sounds almost like GATA has given up hope. Do they know something that we don’t???
they were deflated when Gary Alexander flubbed the lay up question to put Greenspan on the spot. We all had high hopes for that.
Bill,
I think your last paragraph says it all and that those are already the facts.
The good old USA elites played the game wrong this time and are bankrupt. In my opinion we are already a 3rd world country, we just haven’t put out the sign yet.
All the big banks are bankrupt and broke, but just haven’t been exposed and found out yet.
All that paper stuff everyone calls money is just toliet trash.
Many Americans will be looking for jobs as house boys or house girls for the Chinese.
I hope and pray that the bankers are not such bad losers that they start WWIII.
yes Farrell, this is why I mentioned “war” as a possibility, sore losers.
Bill- great article, thanks for giving us a perspective to think on. Also- always good to see “Sun Tzu” in the mix. Far too often overlooked by the west, he is still studied deeply by China’s military (Which owns everything remember!) Anybody that wants to “get in the head” of chinese leadership would do well to read “The art of war” (a reasonably short read) and apply it to business.
I’m a long-time believer that it’s one key to understanding the East’s mindset. Another is history; I think we can agree that the East has a long memory and they respect history far more than the West seems to. Perhaps a refresher on the cause of the Opium Wars (plural) would be in order as well.
Yes Guy, the mindset of the East and the West are worlds apart.
Bill,
Your statement – “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.” – goes to the crux of the whole matter of China’s accumulation of gold.
A lot of people keep postulating that China is accumulating gold as a hedge, against their $1.3 Trillion UST holding going to ashes, when it crashes and burns. I say nay. They are missing the most salient points.
China does not need to hedge their UST holdings. They already consider it worthless – while converting it into any real tangible assets that will be useful, post SHIT HITS THE FAN.
China can both make itself and many of its people very wealthy, at the same time – beggar their enemies, who DO NOT own physical gold. The sweetest revenge is to become rich, impoverish your enemy, and make them your economic slaves!
How can they do this? Very easily! As your statement above proves it. Let’s exercise our imagination and ask WHAT IF – China offers (bids) to buy gold at the following prices (whether in RMB/EUR/USD)? And assume the PBOC holds 20,000 tons of gold and the Chinese populace holds 5,000 tons. 25k tons = 803,750,000 troy ounces (let’s make it a easy number of 800 million oz).
If offer is $100,000 per oz? Total value is $80 Trillion.
If offer is $1,000,000 per oz? Total value is $800 Trillion.
And when they make an offer to buy, at any size, what is going to happen? Will you laugh, or sell your 1 oz coin?
And I am sure that China does not even have to part with a lot of paper currency. Because everyone else will adopt that price to buy and sell. Would you sell your 1 oz gold coin for $1200 or $1 million?
gold is not to hedge their Treasury positions, it is to “win the game”.
This article doesn’t surprise me, but I love how Bill put it up there. Hopefully, enough Swiss voters read it, and understand what the future will look like. I am floating the thought that the Chinese haven’t pulled the trigger yet in announcing their gold holdings as they wanted to ensure an alternative system is in place (bi-lateral currency trade agreements, BRIC’s new bank, etc). They also need to stockpile commodities, crude oil, etc. And finally, they needed to modernize their military so that the Americans cannot create a situation. Net, are the pieces in place? Looks like most of them are. The danger is if the Chinese wait too long, the degradation in global resources will threaten China’s own prosperity (agricultural/meat produce, resources, consumers for their manufactures, etc).
…The Art of War.
In response to PayPal stopping forwarding of donations to the Swiss Gold Initiative backers, I have cancelled my PayPal account and would like to see others do it. PayPal has no business taking a side in this or any other contested matter and I can’t imagine how much pressure they must have had exerted on them by ???? to take this position. Even Google and Apple are telling TPTB to buzz off about encryption in their operating systems.
“It means the U.S. (and much of the West) will be relegated to nearly immediate 3rd world status.”
Perhaps. But then again, perhaps not. The US is still a substantial industrial power in the world and THE agricultural power in the world. Going forward, countries that can produce more food than they consume can market it to a hungry world. That alone gives the US plenty of punch in the future. That and a more than substantial strategic nuclear force.
yes, we do feed the world.
Bill, what are your thoughts on Russia stockpiling gold as well? Its quite possible and they may have a large stack as well.
yes but they were dead broke and had to basically start over so they had no head start.
Hi Bill, this “little” secret surely explains why many charts are starting to look more and more like seismographic charts.. Waw. Nót for all the love & money in the world I’d wanna be involved in this mess. Clearly the uninformed bankers and government officials think differently. But, as someone once said: “proof is never found in the agreement of all persons”. I guess all bets are off now and I’ll be buying this entire decline, together with our informed Western friends. Not for gain, but as a tribute to common sense. Final thought: it’s quite an unpleasant feeling assuming China & friends is watching the entire West thinking “look at these fools playing paper money games in mathematics world..”. I have the feeling we’re tapdancing on the edge of a cliff, as another once said.
charts are meaningless in manipulated markets except for the most long term charts.
Bill
I’m a gold bull and like you believe that China will control the gold market. With their $4 billion in fx reserves, they can take control of gold at any time. I agree with you total that western sovereigns are financially bankrupt. You can’t financially engineer prosperity. It’s too late now to make reforms to structural cost issues – entitlements and healthcare costs. We’re dead thanks to qe and ignoring cost issues. Politicians and bankers are pathetic.
I think your articles have been very good and I appreciate them. However, I believe this article you wrote based on MacLeod article is way off base. For many decades annual demand for jewelry and coins has been in the 2500 ton range per year. About 500 tons of scrap is generated per year from the fabrication of new jewelry and coin sales – 20% scrap rate. The 500 tons is recycled with the old junk jewelry. No way of separating it. So the recycled supply data put out by the world gold council has been grossly inflated. It just so happens that the 500 tons of scrap gold has approximated the amount of leased and sold gold by western central banks over the period 1985 through 2005 (say about 10,000 tons in total).
This is why the supply and demand totals put out by the world gold council have been in approximate balance until recently when Chinese wholesale gold demand has gone off the charts – 2013 about 2200 tons). Chinese wholesale gold demand does not includes purchases by the pboc. The Chinese data is on BullionStar website – Koos Jansen. I think China around 5000 tons of gold – in the last 6 years they have mined about 2000 tons and have bought (my guess) about 2500 tons. Their stated aim is 8500 tons.
total demand has been in the 4,500 ton range for at least 15 years
Bill
Fwiw – The bulk of gold demand in 1980’s and 1990’s was driven by jewelry, coins, medallions and industrial usage. This makes the scenario put forth by MacLeod unrealistic.
China’s stated aim is 8500 tons. They just announced this. I think they currently have 5000 tons.
I think current demand is probably in the 6000 tons range. China is soaking up about 3000 tons including pboc purchases, India near 1000 tons. No idea where all this gold is coming from. Koos Jansen said he’s going to take a stab at this on the BullionStar blog.
yes “where” can the gold possibly be coming from? The answer is …the only place it exists in this quantity, western vaults
Koos looks at the gold/silver import-export data by country which should give us some clues. I think we should see something from Koos within the next few weeks.