When the history books are written, will May 2015 be viewed as “dead center” of the eye of history’s worst Category 5 financial hurricane? For several weeks, I have written of the lazy, complacent, clueless “journalism” that attempts to reconcile the dichotomy of the worst economic data of our lifetimes with the highest stock and bond prices; let alone, surging oil and copper prices whilst lumber, coal, iron ore, and countless other industrially sensitive commodities plunge. Care of decades of brainwashing and manipulation, the MSM doesn’t even attempt to explain the enigma of Precious Metal price movements. And as for “forecasting” the future, whatever remains of their disgraced, ratings-deprived minions simply parrots Wall Street and Washington propaganda. And even when reality does creep its way into their sphere of influence, it magically disappears like ice in the desert.
To wit, following last week’s worst GDP report in years – which will likely be revised lower – and an FOMC statement so dovish, it made actual doves blanch, U.S. government-led “manipulation mechanisms” simply did what they do best; i.e., attack paper PMs, and goose stock prices. Consequently, said “journalists” decided to simply take the weekend off – knowing full well that not only is no one listening to them, but given their complete lack of understanding of economic and markets, there was simply no way they could explain such paradoxes to readers. Hence, this weekend represented the unequivocal low point of “horrible headline” volume in my 3½ years at Miles Franklin; NOT due to a lack of bad news, but the extreme dearth of reporting and analysis of it.
For example, we are just two days from Greece owing €200 million to the IMF, and eight days from a much more terrifying €770 million payment due. The former will probably by scrounged via a variety of shady measures – like not paying public employees; directing public bank deposits to the National bank; and raiding pension funds. However, there’s not a snowball’s chance in hell of culling enough funds for the latter – which, of course, would mean a default (and potentially “Grexit”) could be mere weeks away. That said, the most I saw this weekend on the topic was an article of how “progress” was being made on the very debt “deal” Alexis Tsipras has vowed to never take. Let alone, the Greek people, who swept Tsipras’ Syriza party into office a mere three and a half months ago under a virulently “anti-austerity” (read – NO DEALS) platform.
In China, the week opened with its PMI manufacturing index plunging to 48.9 in April from 49.4 in March; representing its biggest monthly plunge in a year, and, despite the comical “7%” GDP growth China purports (albeit, its lowest official level in 35 years), unequivocally purporting recession. European PMI data, too, depicted continued economic flat-lining despite the so-called “guaranteed” benefits of the ECB’s Euro currency debauchery schemes. And here in the States, we were treated Friday to a horrific, “unexpected” plunge in construction spending – as well as extremely weak, “unexpected” declines in April ISM Manufacturing, PMI Manufacturing, and motor vehicle sales. And yet, with the same rote consistency as 2:15 AM” EST Cartel gold and silver attacks (on 429 in the past 491 trading days), expectations for this week’s litany of economic data is decidedly bullish!
I mean, we have witnessed 2008-like economic weakness – and “misses” versus expectations – for perhaps six month now. And yet, week after week, the “consensus” unwaveringly predicts improved readings for essentially all economic data readings. Several years back, I discussed how such “expectations” are created; i.e., by the very “evil troika” of Wall Street, Washington, and the MSM incentivized to perpetually cheerlead the economy and mislead the masses. However, given the recent, relentless avalanche of global economic implosion, even I am dumbfounded by just how pervasive, and unwavering, the bullish tide has become. Of course, the only reason this has occurred – dove-tailing with record high financial asset valuations, margin borrowing, and sentiment; and record low Precious Metal valuations and sentiment; is the rampant manipulation that has temporarily disabled the free market price discovery process. Remember, “Economic Mother Nature” has never been defeated – and given today’s historically bad outlook, her “winning streak” has never less threatened.
As I watch today’s Precious Metals surge, seemingly “un-catalyzed,” for the second straight Monday (likely, as the Cartel “exhales” following last week’s horrific GDP report and uber-dovish FOMC statement), I’m geared to write of the type of topic I typically avoid. That is, one in which a significant degree of speculation is required to drive the point home, given my bailiwick has always been – and will always be – the realm of fact. Perhaps it’s because the lack of news flow has limited the amount of incremental opinions on the “usual suspects,” and perhaps because I have strong views of this particularly topic. Which is, the never-ending speculation as to when, why, and how the Chinese government will inevitably announce how much gold it owns.
For the record, the Chinese have made just three gold reserve announcements since the turn of the century. First, in 2001, they raised their official reserve holdings from 394 tonnes to 500 tonnes. Second, in 2003, they raised it to 600 tonnes. And finally, in April 2009 – with the price at $890/oz at the time – they increased it to the decidedly less “round” figure of 1,054 tonnes. Based on reported levels of the world’s myriad Central banks and Treasuries – irrespective of the fact that most such statistics, like the Chinese, are flat out lies, and governed by IMF rules allowing the double-counting of leased and swapped reserves – China is the world’s seventh largest gold owner. Of course, given that the IMF’s holdings are likely the double-counted holdings of various IMF members, China’s 1,054 tonnes of gold reserves, officially, are the world’s sixth largest – well behind the world’s top holder (LOL), the United States, with its mythical 8,133 tonnes.
That said, as China possesses the world’s largest currency reserves, its gold holdings represent no more than 1% of its total “foreign exchange” reserves; compared to, say, the United States at 75% and Italy, Germany, and France at roughly 68%. In other words, even if China holds far more than 1,054 tonnes (it does), it has a loooooong way to go it before its total monetary reserves have any material level of Precious Metal backing.
Given China’s centuries-old affinity with real money (China “boasts” the first hyperinflationary fiat currency collapse, circa 900 AD); and the incredible growth its economy – and currency reserves – have experience in the past two decades, it’s difficult to believe China’s gold reserves were not significantly higher than 1,054 tonnes before the 2009 announcement (particularly in light of the global gold-buying frenzy amidst the 2008 financial crisis); if not, vastly higher. And don’t forget that Chinese citizens weren’t even allowed to own gold until the 2002 opening of the Shanghai Gold Exchange – which has since leapfrogged the COMEX and LBMA as the world’s largest physical gold offtake mechanism. Moreover, since 2009, all manner of evidence – both empirical and anecdotal – suggests dramatic Chinese gold reserve growth; both within the government, and via civilian purchases – particularly as the Chinese government started actively promoting civilian buying that same year.
To wit, Shanghai Exchange deliveries have since gone parabolic; Swiss gold fabrication for export to China has reached record levels; and comments, both official and unofficial, regarding the importance of gold have become staples of the political and monetary establishment. Moreover, at more than 400 tonnes per year, China became the world’s largest gold producer in 2007 – with an official policy that all such production is to be purchased by its government (which, by the way, either directly or indirectly owns the vast majority of mines).
In time, the Chinese will clearly want to capitalize on its vast gold holdings by “backing” the Yuan, either officially or on a de facto basis. However, the how, when, and why remain a mystery – with most PM community members, in my view, under the incorrect pretense that a “grand plan” is being devised by a handful of Chinese Communist Party leaders to be imminently “launched.” In fact, many were hoping this month’s planned IMF SDR symposium (since indefinitely delayed) might provide just such a catalyst – given China clearly wants the Yuan to be included in the IMF’s updated SDR “currency basket,” but was recently deemed “not ready” by the Western monetary lords.
To start, I strongly disagree that the Chinese feel any sense of urgency to be “included” in Western monetary reindeer games. For one, China no longer needs the West, given it, and its satellite states, have become the world’s dominant manufacturing powerhouses. Plus, China’s government is far wealthier (net of debt) than the West; and in setting up the BRICS development bank (to rival the IMF); the Asian Infrastructure Investment Bank (to rival the World Bank); countless currency swap agreements with myriad nations; and its own SWIFT monetary transfer system, it clearly believes it has the ability to dominate global trade. Secondly, in my view the “SDR,” or Special Drawing Right, which is simply a basket of the West’s “leading” fiat toilet papers, not only has not a chance of ever being used; but frankly, is more of a giant propaganda joke than an actual serious concept. And last but not least, I cannot emphasize enough that whilst the Chinese government’s long-term plan is to dominate global trade with a gold-backed Yuan – either officially or on a de facto basis – such an announcement is the last thing the current Chinese government desires.
Nothing occurs in a vacuum; and certainly not world-changing “Big Bang” events like, for instance, de-pegging the Yuan from the dollar, or announcing an official or unofficial gold backing – to the tune of 5,000, 10,000, or perhaps vastly more tonnes. When such knowledge becomes public, either purposefully or by accident, it is highly unlikely to be part of a grand Chinese plan, in my view – as such an announcement will have such broad, cataclysmic political, economic, and social ramifications, there’s essentially no chance the current government would survive it. Governments, after all, care 99.9% about maintaining their power, and 0.1% about all else. To that end, I put the odds of the Chinese government, unprompted and un-catalyzed, simply coming out and saying, “yeah, we have 20,000 tonnes.” at about the same level as the CFTC coming out and saying, “yeah, gold and silver are illegally suppressed by JP Morgan.”
Instead, I believe a more likely scenario is that the next major financial crisis – likely, the “Big One” that destroys the world’s largest fiat Ponzi scheme – forces the Chinese to “defend themselves,” and their crashing currency, by announcing their massive gold reserves. Perhaps, this may actually be somewhat planned, if an exploding dollar (due to a global, fear-based “flight to liquidity”) forces the PBOC to de-peg the Yuan. If this occurs, the most likely market reaction would be a plunging Yuan; which in turn, could force the PBOC to slow the Yuan’s descent by announcing its massive gold reserves. Either way, the global ramifications of such an announcement would be so powerfully negative, the Chinese economy – already on death’s door – would be dramatically weakened as well. And thus, you can see why such a scenario is decidedly NOT desired by the Chinese government.
To conclude, whilst there is simply no way of knowing exactly how events will play out as the world’s largest ever fiat Ponzi scheme collapses, the one thing I am sure of is that such events will decidedly NOT be catalyzed by government declarations. In other words, as they created this mess; and they are most incentivized to maintain the status quo; there is simply no way that they will purposefully catalyze its collapse. Instead, “Economic Mother Nature” will do the job in due time; and whether she “allows” governments to play an active role in managing the collapse, make no mistake. It will be she that controls the action, and she that starts and ends it.
NEVER! NEVER! NEVER! NEVER! NEVER! NEVER! NEVER!
Why do you want to know? hey?
Why this obsession? 😀
SERIOUSLY, what does know this change your life or worldview for good?
Ignorance is bliss, even bless. NO?
I want to know what much of the private chinese/indian/russian family own and what stuff… wont surprise me if that would be more than china…
The ultimate currency? Dried beans, rice.
HA HA 😀 good one but so true…
I’ll take it…
as a decedent of the surviving victim of WWII,
im just beyond words
it is as if some ppl over there truly think it wont and CANT happen to them
gov is your best fren hey?
sad… Fitz on G.hunter has a great interview today….
listen carefully you will hear country are like club membership
it may not be there tomorrow…
it has happen in history… is that so hard to take into account
given many know about how bad the “reality” in the accounting books are?
and yes my grandparents literally survive
by trading bean and rice to get by during the testing time…
they were treated less than a rat crossing the streets…
each has only one mouth full of rice per day
and that no joke and alot of pain
now china/rus/india/asia has a different problem so it seems…
sad to see it unfold really… well good luck
Excellent piece as always. And your speculation of how things may go for China once the Western fiat system explodes is certainly plausible. Reminds me of every general planning a battle in detail all the way through to victory. Then the battle starts and most of the battle plans get junked immediately due to real world, frontline conditions.
This not to say your reasoning is flawed or you have misread how China has been preparing. All I want to point out is the military maxim of: No battle plan survives contact with the enemy.
All around the world today we have central authority figures running things in every country. Each has their focus groups, consultants, think tanks et al making plans and contingency provisions for a myriad of situations. Even if there is a correct plan, getting it identified and then to the top for approval and implementation is problematic.
Then there are the real black swans, like an earthquake under that huge dam they have on the Yangtze river or under one of their nuke generating plants. Or the knock on effects of the Pacific being killed by Fukushima and pollution. Not one country one the globe today has a years worth of food stockpiled for their population. If China can’t get food from the Pacific, they and all the Pacific rim countries will find their attention re-focused. Plus that’s when the global financial crisis will strike since things seem to pile on when the going gets tough.
I do think you are right that there will be regime changes due to the ponzi blowup. When the various central authority figures butt heads, particularly with the maniacal ones currently infesting Washington, war is almost a given outcome. All those underground cities should give rational people pause that things won’t go completely out of control. The elites battle cry might well be: Give me power or I give you all death. I like to think they will be stopped before that point.
So assuming there are tomorrows to come, the line from your blog several days ago remains operative: “Instead, we own Precious Metals to preserve our wealth until that place and time – be it within our lifetimes or not.”
Thanks again for sharing your well reasoned thoughts.
Thanks, Mark – but I think we agree entirely. This is what I have been saying; i.e, the various powers that be are no more than chickens running around with their heads cut off. Chaos will reign as in 2008 – only this time, it won’t be stabilized by money printing. Man the lifeboats, BEFORE the storm hits.