“Supreme Excellence”, Pt. 2: The Great Wall of Gold
Stackers Love Company
Not only is Russia’s perennial gold-buying a conscious effort, rather than a happy accident, but they’re most certainly not alone in their tireless quest for even more of the yellow metal. If you thought that Russia’s policy of gold accumulation was “over the top” though, then you haven’t seen anything yet.
Very shortly, you will realize that this focus on gold as a key element in strategic policy is being duplicated by many others, specifically in the Eastern world. Russia has some rather large bedfellows in the gold-stacking game, and it’s one party in particular that we’ll focus on today.
Gold Rush: Made in China
Many are still unaware that the Chinese have been in a gold-buying spree for the last decade or so. It wasn’t until the last several years however, that this thirst for gold was kicked completely into overdrive. They are buying so much gold, in fact, that the world can barely produce enough to satiate just this one country’s demand.
In case there are any doubters out there, I’ll post a few charts to demonstrate what I mean:
Take a long, focused look at the chart above, as it portends a great deal for the future. As the old saying goes, “a picture is worth a thousand words”, and this picture is a prime example of the truth of that expression. There is so much going on in this chart to unpack.
If you doubted whether or not China loves gold, doubt no more. What you’re witnessing is a modern gold rush in the 21st century. Chinese citizens are being actively encouraged by their government to accumulate as much physical gold as they possibly can, and it seems 1.3 billion Chinese cannot get enough of it.
In fact, in just 5 short years shown in this graph, Shanghai has delivered so much gold, that it is now about to reach 7,000 metric tonnes of deliveries, in that time. What that chart doesn’t reveal though, is that another 1,000 tonnes of gold, has previously been delivered from the years 2000-2008.
Perhaps they should put a sign out front on the Shanghai Exchange. Ya know, like McDonalds?, Saying:
“Over 257 Million Ounces Served.”
To give you an idea of how much gold that is, the United States(on paper) supposedly has just over 8,000 tons, which is claimed to be in places like Fort Knox, and the New York Fed vaults. In a mere 5 years, China has imported as much gold into their country, as the largest official gold-holder of the world states in its reserves. That thought is profound and astounding.
Here’s another excellent chart which sums up the situation nicely, from Mr. Koos Jansen:
Each year, minus China and Russia(since those countries do not export their gold), the world mines about 2,200 metric tonnes of fresh gold it can supply. What this means, is that over the last 5 years, almost 7 of every 10 ounces of gold brought up from the earth, have been bought up by the Mr. and Mrs. Wangs of China.
The Peoples’ Bank of China
Now, of course, this doesn’t include gold scrap supply, but on the other hand we’re not even including official Chinese government demand yet, either. That’s a whole different matter entirely. The world has barely been able to supply enough gold simply for Chinese citizens to buy, but the People’s Bank of China(PBOC) has been buying with both hands too.
Like Russia however, they’re playing these cards close to the vest. Closer, actually. For, you see, not since the spring of 2009 has the PBOC even announced any changes in their gold reserves. The last time they announced a change in their reserves, the number of tons was bumped upward from around 600 tons, to over 1050! This represented a percentage increase of over 60%, in one fell swoop. That one revision, bumped them up from 10th largest gold reserve, to the 6th largest.
Crouching Tiger, Hidden Gold Purchases
There are many mainstream commentators who are quick to assure “gold and silverbugs”, that the PBOC isn’t really intent on gold as much as we claim they are. They say that the previous additions to their gold reserves aren’t really a core strategy that a resurgent China is employing, to say, bolster their currency, the Yuan. They’ve also said that China’s purchases are minimal at best, and that they’re not intent upon obtaining a dominant position in the gold market.
Such people are either ignorant, or liars.
In December of 2009, the “China Youth Daily”, quoted a Chinese State Council Advisor, known only as “Ji”, stating that experts from Beijing and Shanghai had set up a “task force”, for the express purpose of growing China’s gold reserves.
How much gold were they keen on buying at the time? The recommended figures tossed around were to grow Chinese gold reserves to roughly 6,000 tons in “3 to 5 years”, and to as much as 10,000 tons “in 8 to 10 years”.
It sounded unbelievable at the time, but just 5 short years later, this level of Chinese gold demand almost makes those figures sound…conservative, doesn’t it?
Let’s assume though, that the quote was completely accurate. If they’re on track, where does that put the PBOC’s gold reserves now?
It puts official Chinese gold reserves at over 6,000 tons!
Look back up at the world’s top gold reserves. At the tippy top, is the U.S. Government’s reserve, which is above 8,000 tons, with Germany a very distant 2nd, with roughly 3,400 tons. This means that by now, China likely holds the 2nd largest gold reserve in the world, almost doubling the total held by the Germans. By the way, that’s the same Germany, who has tried to get a measly 300 tonnes of gold returned home from the New York Fed’s vault, and can’t seem to acquire more than a handful of it.
Ya know, because it’s “totally there, and all”. *wink wink* *nudge nudge*
Not Reserves Alone
Furthermore, if you think that China’s government is content simply accumulating enough gold to build every one of their citizens a deluxe, 24-carat-gold-plated, hamburger grill, you’d be wrong.
Their authorities are not content at all, to simply accumulate a great deal of gold. In fact, they’re pushing hard to also dominate the world in “all things gold”. Consider this series of vaults they’re building, for example, many of which are the biggest of their kind in all of Asia. Or, perhaps the fact that the Shanghai Free Trade Zone(FTZ) will also soon launch their gold contracts, both physical spot and derivative, to compliment the already bustling Shanghai Gold-trading infrastructure.
No, they don’t simply want gold, they want something else which they currently don’t have: gold pricing power. As weird as it may seem, though most of the physical gold deliveries now happen in, and around, China, it is still the banks in London and New York City, which control its pricing, because they still dominate the derivative trading scene. What’s more, gold’s pricing is done by these banks in U.S. Dollars, and Great British Pounds.
That will soon change. Chinese authorities have announced they’re keen to launch both physical and derivative gold contracts, which are denominated and settled in Chinese Yuan(or Renminbi). Shield brothers, the implications of everything we’ve just covered are vast, and are relevant to your everyday lives.
In partnership with Russia and others, China is stacking so much gold, at such an amazing speed, that the world has never seen its like before. There is definitely a multi-leveled strategy here, to be the center of gravity for gold-trading/pricing/storing: not just for Asia, but for the world.
If you have eyes to see, then you must realize right now:
The Chinese government is doing all this to fortify its position, by building the “2nd Great Wall” for its own protection: the “Great Wall of Gold”.
“Um, what?”, you may be thinking. “You mean their aim is to build a wall on its borders, made entirely out of gold bricks? That’s stupid. The Mongolians haven’t been a military threat for centuries!”
No, I don’t mean that at all. I mean that the Eastern Bloc of countries realizes they’re at war with Western ones, not a shooting war, but a financial one. This is an unconventional war, and an unconventional war requires unconventional tactics.
The “slings and arrows” flying through the air aren’t bullets and bombs, but rather economic sanctions, currency swap agreements, and boycotts. Whether you realize it or not, this war has been red hot for some time, and will soon come to a head. There’s actually more to gain or lose here, than most people can wrap their heads around, and the results of this conflict will change the world forever.
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