China, Gold and the Non-Open Door

The December gold future price has risen to over $1000 and this may mean that the precious metal will again trade in quadruple digits on spot markets, as it did half a year ago, however briefly. This reflects the moves by the world's biggest coupon clipper, China.

There are various theories around the price of gold, most of them conspiratorial nonsense. Believing in plots is a tempting way to handle world complexity. You get a simple answer to why things do not work out as you think they should, with a ready-made if vague villain. Now that the Cold War is over, evil puppeteers range from Pres. Obama to the Bilderberg Group, from central banks to the ghost of J.P. Morgan. The opposite side in the Gold War...

My view is that one central bank is actively buying gold but hopes to keep this secret to avoid having the price go up against its plans. That CB is China's. In the Daily Telepgraph, a British newspaper, international business editor Ambrose Evans-Pritchard even names the Chief Chinese Conspirator or the Chief Coupon Clipper (CCC) buying gold on the cheap.

The CCC is Cheng Siwei, now a roving economic ambassador for Beijing. He earlier was a high administrator of impeccable Communist credentials. Mr. Cheng is setting things up in Europe to buy gold surrepticiously, the reporter says, in order to stop the market from moving against his purchases.

Earlier Mr. Cheng was a known worrier about China's excessive holding of dollars, fearing that western central banks' policies of quantitative easing would reduce the value of dollars that China was holding. China's currency, the Renminbi or Yuan, is protected by exchange controls and as long as they go on, it cannot hold reserves in its own money.

That is why it is very hard for Jim Rogers to follow-up on his plan to hold RMB-denominated assets. For a round-eye, even in Singapore, they will not be easy to acquire. Except by the back (non-open) door.

Now the 64 bn RMB question: will Mr. Cheng cut his reserve diversification efforts if the gold price goes up? Or will he buy on?

China is also proposing to sell RMB-denominated bonds in Hong Kong, a tiny first step to internationalizing its currency. With severe exchange controls in place, there is now way the RMB can become a reserve currency for China or the rest of the world. Long-term, if gold backed and accessible, the reserve RMB could be China's goal. But it will take several dynasties to reach that goal.

Other bits of China news are good for our companies outside China. First the country is buying lots of potash, initially from Russia, to fertilize its fields. And secondly it is investing again in airports and airplanes. And beefing up mobile telephony.

Comments

[NUCLEAR1929:]

everybody understands that gc price is crazy

Sep 08 02:33 PM

[Mad Hedge F...:]

hhdfgt. Just as it is prudent to top up your flood insurance ahead of the hurricane season, investors are loading up on gold ahead of the treacherous September-October stock trading period. Yesterday’s $22move up shows that attempt number six to run the yellow metal up to anew high has begun. Silver happily tagged along for the ride, tacking on 70 cents to $15.49. Historically, September is the best month of the year to own the barbaric relic, showing an average 3.5% gain over the last 20 years. The onset of the Indian wedding season, Ramadan, and the run up to the Christmas and the Chinese New Year jewelry buying binge are all conspiring to give gold a boost. A tip off this was coming wasthe big put selling seen for the shares of the gold ETF (GLD), and Kinross (KGC). One good way to play gold at this late stage might be the shares of highly leveraged unhedged producers like Rangold Resources (GOLD), Jaguar Mining (JAG), and royal Gold (RGLD).Confirmation that the markets are moving towards risk aversion can be found in the euroyen chart, which hit a one month low at 131, after double topping at 140.50. If gold does break, it could tack on 20% very quickly to $1,200. Load up on those American gold eagles. If you wantto know where to find them in size, check with the experts at millenniummetals.net by clicking here.

Sep 08 03:06 PM

[gold33vain:]

Interesting article! HOWEVER;

China tells the WEST what it wants the WEST to know! Anything else in conjecture.

I recently read that Greenlight Capital sold $500 million worth of their GLD exchange-traded fund holdings and bought physical bullion.
When are the rest of you going to make the realization that GLD, SLV and companies advertising to sell one ounce gold Maples, Eagles, etc and then state "we will store your gold for you", are nothing less than PAPER INVESTMENTS! Trust YOURSELF with YOUR MONEY & Gold & Silver...and NO ONE ELSE.

Have you noticed over the past 5 trading days, Silver has outperformed GOLD by a two to one margin! Also if you have been tracking Gold & Silver, silver has out preformed Gold 26.6% vs 12.9% from April 6 thru Sept. 9, 2009.

In weeks, months and years to come, I DEFINITELY see the trend continuing, however at MORE than a two to one ratio. I'm projecting Silver to reach $60./oz before gold reached $2,000/oz.

Coin shows are the best place to buy PHYSICAL GOLD and SILVER.
Long Beach Coin Expo, Long Beach Convention Center, Long Beach, CA opens at 10 AM this Thursday Aug. 11 (Thurs thru Sat) Of the 400+- dealers, there will be 40-60 dealers with gold & silver for PHYSICAL purchase... all in the same room... competing for your business. It is up to you to shop around and make your best deal. You should be able to purchase GOLD (depending upon what type you select) at levels between 2% and 12% over spot melt price. Coin silver, pre-1964, should be priced between 1% - 5% over spot melt price depending on the denomination (half dollars are slightly higher than dimes & quarters) and quantity.

Those of you on the east coast have a show in RICHMOND, VA August 18-20.

Sep 08 03:34 PM

[gold33vain:]

Silver mining stock to watch!

HL (NYSE) Helca mining was up 10% today ($3.45 to $3.78 Stock Market had not closed as of this posting)

Stock closed at $2.96 on Aug 31. and is up over 30% since that close 9 days ago.

You could have bought this stock last October at $1.25.

HL has a track record high 4 years ago @ $12.50

My projections are $15.00 or higher by MAY 2010.

Sep 08 03:43 PM

[gold33vain:]

Mad Hedge F

Silver is not "tagging along" after gold.

Since October 27, 2008, GOLD has tagged along behind SILVER 37% TO 81%... $9.05 to $16.40 vs $729. to $997. ... MORE THAN A TWO TO ONE RATIO!

Sep 08 03:57 PM

[HaavBline:]

A Chinese official speaks, multiple analysis follow. This days, the investment community is indeed watching not only every MOVE, but also every WORD, from China.

Sep 08 05:51 PM

[User 422955:]

China now mines more gold than any other country. Why would they buy more than what they already have?

Sep 08 08:37 PM

[billyboy54:]

IMHO, China is talking up the price of gold, in retaliation for Ben's QE policy devaluing their dollar holdings.

They have already publicly disclosed they've been stocking their reserves with gold for several years now, and recently have disclosed they are urging their citizens to buy gold and silver.

Ben has said that in the 70s stagflation "we let the price of gold get out of control".

Since then, its price has been suppressed by Western CBs.

China is making that suppression harder, but talking up the gold price. Money flowing into gold is flowing out of treasuries, driving yields higher, making QE even more catastrophic for the costs of servicing our debt.

We think we won the Cold War......but not all the players have stopped fighting yet.

Sep 08 11:03 PM

[bindlepete:]

I have rarely read such nonsense openly published. Yes the price of golg is rising because of buying pressure. Just leave at that.

Sep 09 12:37 AM

[blacksilver:]

The golden rule
"He who has the gold makes the rule"


On Sep 08 08:37 PM User 422955 wrote:

> China now mines more gold than any other country. Why would they
> buy more than what they already have?

Sep 09 02:58 PM