On the heels of the Dow hitting new all-time highs and the U.S. dollar continuing to surge, China is planning to shock the world by pushing the price of gold over $10,000.
(King World News) Stephen Leeb: “Over the past few years, several things have convinced me that China has big plans for gold – plans that would make gold a monetary metal and send its price soaring far higher…
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Stephen Leeb continues: “Item number 1: A colleague and I were talking a few years back with a well-connected Chinese national who worked for an American asset management firm, where she was managing director in charge of Chinese investments. She had hoped I could help find investors interested in putting money into Chinese gold mines.
“China Needs The Gold To Back Its Currency”
I was convinced then, as I am even more so today, that Chinese mines had very low-grade ore and that thus mining them had to be unprofitable. I pressed her on this point, asking why in the world China was continuing to mine so much low-grade ore. She eventually responded that “China needs the gold to back its currency.”
I then briefly left the room. My colleague later mentioned that while I was out, the Chinese investment manager (who spoke very good English) had told him she had misspoken: she had meant to say that China was mining so much gold to meet Chinese demand for jewelry. For my colleague, someone entrenched in the financial community, backing a currency with gold was such a foreign notion that he readily accepted her backtracking. I was more skeptical.
Item 2: More recently a Chinese-born employee who speaks both Mandarin and Cantonese and who speaks and writes perfect English – arriving in this country at 10 years of age and graduating from one of New York City’s most competitive high schools – translated a passage for me from a speech by China’s Communist Party’s secretary in charge of gold. Unlike translations that had been publicly released, his version, which I trusted implicitly, included the following sentence: “Gold is the only product that holds properties of a commodity and currency; it’s the most trusty asset on which modern fiat currency can be based.”
Item 3: This refers back to the first item: It’s the striking anomaly that China is the world’s single largest gold producer and mines more than 16 percent of the world’s gold, even though it has less than 3 percent of the world’s reserves, which suggests low grades and high costs. China would be doing this only if convinced the ore’s value would be a lot higher in the future.
How Much Gold Does China Really Have?
One critical question is, how much gold does China have? Exact figures aren’t obtainable. But there’s good reason to believe the amount could be far more than even the most ardent gold bulls imagine. An ability to amass a lot of gold in a short period of time should come as no surprise given how China has shown how quickly it can ramp up in so many different areas – going from nowhere to No. 1 in supercomputers, to give just one example.
Here’s what we do know. China hold $1.2 trillion in U.S. debt – bills, notes, and bonds. Including its sovereign wealth fund, total foreign reserves are about $4 trillion. The composition of the $2.8 trillion not in U.S. debt is a state secret. Strikingly, China is the only major economy not required to report how its reserves are allocated. While China has stated the dollar constitutes the largest chunk of the $2.8 trillion, it can wait until 2018 or even 2019 before giving an actual, complete breakdown.
Although gold is a financial asset, it is not counted as part of currency reserves, though it is counted as part of international reserves – anything to keep the yellow metal from becoming a currency. Still, until the Chinese have to delineate their reserves, there are many creative ways some gold could be substituted for a currency.
China Already Owns A Staggering Amount Of Gold
However, we doubt that the Chinese are going in for such overt shenanigans. The best estimates are that the Chinese populace holds about 14,000 tons of gold and the PBOC holds about 4,000 tonmes. The 14,000 tonnes comes from pretty strong data: withdrawals from the Shanghai Gold Exchange (SGE). The 4,000-ton figure comes from guesstimates of how much gold the PBOC has accumulated. Though the 4,000 tonnes are well above the 1,700 tonnes the PBOC has reported, I think it is still dramatically understates the real figure.
One critical difference is between what the populace holds, which is considered non-monetary gold, and the monetary gold held by the PBOC. This is highly significant when it comes to trying to get a handle on China’s monetary gold because imports of non-monetary gold must be publicly reported, while imports of monetary gold come in unreported.
An obvious question is, where did China get the money to buy all this gold? Late last year Bloomberg carried an article in which an esteemed Chinese economist argued that China was missing a chance to create more balanced growth. Liang Hong, chief economist of China International Capital (CICC), had discovered that Chinese public institutions had the equivalent of more than $3 trillion in deposits at the country’s banks earning very low interest rates. Putting this money to work, she argued, would mean less taxes on the public and a better balanced economy.
China’s $3 Trillion Reserves Targeting 70,000 Tonnes Of Gold?
My guess is that Premier Li, to whom Liang presented her views, wasn’t unaware of the $3 trillion plus. After all, that’s a big number and Premier Li is a top-flight economist whose Ph.D. dissertation won an award as best dissertation in China. That leads us to guess the more than $3 trillion in deposits is being used to buy massive amounts of monetary gold for the PBOC. Keep in mind there is nothing that would stop the country from buying gold directly from miners or foreign investors – and buying for a small premium.
What could $3 trillion ultimately buy you? Complete control of the gold market or about 70,000 tonnes of gold (note that this would be in addition to the gold already held by China’s populace). I doubt that China has already accumulated this much gold. But anything is possible, especially in a world in which China is the center of all physical gold trading. In a single week more physical gold is withdrawn from SGE safes than is withdrawn in a year from COMEX safes.
China To Shock The World By Pushing Gold Over $10,000
These figures also suggest one potential target for gold. If China accumulates 70,000 tonnes, it would have enough gold to back up about 10 percent of its money supply. Multiply the price of gold by 10 and you have a potential target for the yellow metal. And multiply 10 by something on the order of 5 and you have a potential target for solid emerging gold mines. As I have said, this is the bull market of a lifetime, and it is just beginning.”
***KWN has just released the powerful audio interview with the man who helps oversee more than $90 billion CLICK HERE OR ON THE IMAGE BELOW.
***Also Just Released: Jean-Marie Eveillard Helps Oversee $90 Billion – Discusses Gold And The Greatest Bubble In History Click Here.
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