The Inteligencia Financiera Global blog (Global Financial Intelligence Blog) is honored to present an exclusive interview with economy world expert Jim Rickards. Jim is the author of the bestseller “Currency Wars: The Making of the Next Global Crisis” and the forthcoming, “The Death of Money: The Coming Collapse of the International Monetary System”.
Jim, as you know, China is now the world’s largest consumer of gold. While the WGC states that its “record” demand in 2013 was only 1,065.8 tonnes, the China Gold Association estimates “gold consumption” was 1,176 tonnes. On the other hand, several pundits like Koos Jansen say that the real China gold demand was much more than 2,000 tonnes last year. Who should we believe?
– There are many estimates of official and non-official accumulation of gold in China. The truth is that no one knows the exact number because China is non-transparent about the total amount of gold coming into the country and its own mining output, and it is not-transparent about how much of that gold goes for personal acquisition and now much to government reserves. So, all analysts, myself included, are working with imperfect or incomplete information. We do know that some gold comes into China using military channels and is not reported to any authority. As a result, even the best estimates may be too low. The best guide is to assume China has some target in mind, probably 5,000 tonnes or higher, and will continue to accumulate through diverse channels until that target is reached. My estimate is that China will announce it has over 5,000 tonnes of gold in early 2015. It probably has at least 3,000 tonnes today.
Gold is going from West to Far East, that’s a fact. It seems that the “developed” economies are being left only with paper “gold”. Could this lead to future war tensions between China and Russia on one hand, and the US, Europe and Japan on the other?
– Gold is certainly moving quickly from vaults in the U.S. and Europe to as those maintained by the COMEX and the GLD ETF, in the direction of vaults in China including those of the government. Much of this gold passes through Swiss refineries where it is melted down from 400-ounce bars of 99.90% purity and re-refined and recast into 1-kilo bars of 99.99% purity. When gold moves from west to east, there is no change in the total stock of gold, but there is a reduction in the floating supply since COMEX and GLD gold is available for trading and leasing whereas China’s official gold is not. This implies a gradual unwinding of paper short positions in gold, because there is less physical available to support the paper trading. In turn, this supports a higher price for physical gold. A higher price for gold means a low value for the dollar when measured in gold. This will increase tensions between China and the U.S. Tensions are already high between China and Japan over the South China Sea islands, and between the U.S. and Russia over Ukraine. Taken in combination, the potential for a mistake or escalation resulting in actual warfare prompted partly by increasing gold prices is growing more likely.
Jim, is the world on the verge of a deflationary collapse or an inflationary one? In any case, is it a good idea for the common people and even entire countries to accumulate physical gold reserves?
– The world is on the knife-edge of inflation and deflation. There is a powerful deflationary trend in the world because of the depression of 2007 and the need to sell assets to liquidate debt, which puts further downward pressure on asset prices, increasing stress on others, forcing further asset sales, etc. in a downward spiral. There is a powerful inflationary trend in the world because of massive money printing and zero interest rates, which allows the use of leverage to pump up asset prices. The deflation and inflation are cancelling each other out in price indices but neither is going away soon. Physical gold reserves are the best asset class in this situation. If inflation prevails, gold prices will go much higher through market forces. If deflation prevails, the government may force gold prices to go higher in order to cause more generalized inflation. This happened around the world from 1931 to 1934 when the U.K., U.S. and others devaluated their currencies by raising the price of gold. In the depths of the deflationary Great Depression, the price of gold measured in dollars increased 75%. This illustrates why gold is being accumulated by central banks because it preserves wealth in inflation and deflation.
Full article: Jim Rickards: China is Importing Gold Secretely Using Military Channels (EXCLUSIVE INTERVIEW!) (Inteligencia Financiera Global)