China’s Secret Gold Hoarding Strategy

China’s leaders have a clever strategy, and Western financial powers may someday wake up in shock when they realize what has occurred.

 

China, Russia Are Quietly Emerging as World’s Gold Buyers

Chinese officials aim to ultimately to challenge the America’s standing as the world’s superpower. That’s why they’re forming a strategic alliance with Russia, an adversary of the U.S. That’s why both the Russian and Chinese central banks have quietly emerged as the world’s largest gold buyers.

In July, the People’s Bank of China reported that it has added more than 600 tons of gold bullion to its stockpiles since 2009, taking the total to 1,658 tons. That represents a 60% jump in gold assets in just six years.

In fact, all of that new metal was added to central bank’s ledger in June 2015.

With gold prices down in June, there’s no way the actual buying had occurred then. It appears central bank officials simply moved that metal over from the books of China’s state-owned banks which can hold metal secretly.

So that’s just what the Chinese are reporting officially.

China Has an Incentive to Understate Its Gold Hoard

It makes logical sense that China would understate its gold aspirations. If you had the means to acquire hundreds, or even thousands, of tons of gold, you’d want to do so as stealthily as possible in order to avoid tipping off the market.

If your strategic objective was to dramatically boost gold reserves over a period of several years, you wouldn’t want to see the price rise – at least not while you’re still accumulating. And if you had no ethical qualms about interfering in the market, you’d want to rig prices lower so you could obtain more ounces.

Chinese officials are more than willing to manipulate markets, whether through subterfuge, deceit, or outright force. Recently, in an effort to prop up the stock market, they tried to forbid people from selling shares of stocks. How heavily involved China is in managing the gold market is impossible for an outsider to know.

But there is plenty of evidence to suggest that China is covertly buying gold while dumping U.S. Treasuries. JP Morgan analyst Nikolaos Panigirtzoglou calculated that China’s foreign exchange assets got depleted by $520 billion over the past five quarters. Most of that $520 billion in paper asset dumping comes, presumably, from China’s massive holdings of Treasury securities.

China Wants Admission to the Global SDR Club

If China continues to unload U.S. bonds at a feverish pace, the Federal Reserve might be forced to launch a new bond-buying campaign. That, in turn, would diminish the credibility of the U.S. dollar as China seeks inclusion of its yuan into the International Monetary Fund’s Special Drawing Rights (SDR) currency basket.

As Reuters reported, China “is pushing for the increased use of the yuan for trade and investment as part of a long-term strategic goal to reduce dependence on the dollar.” The yuan’s ascendancy to the status of a top-tier SDR currency would go a long way toward making the Chinese currency a serious global competitor to the U.S. dollar.

Whether you’re a Communist or a capitalist, whether you speak Mandarin or English, gold remains the one permanent, immutable common denominator. Gold’s value has been recognized universally for hundreds of years and will continue to be recognized universally regardless of whatever market gyrations or economic or political strife the future may bring.

Full article: China’s Secret Gold Hoarding Strategy (Money Metals Exchange)

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