Sounder Money Ahead - China and Gold by Alasdair Macleod
- GoldMoney.com | October 19, 2013
China is now overtly pushing
for the US dollar to be replaced as the world’s reserve
Xinhua, China’s official press agency
on Sunday ran an op-ed article which kicked off as follows:
“As U.S. politicians of both political
parties are still shuffling back and forth between the White
House and the Capitol Hill without striking a viable deal
to bring normality to the body politic they brag about,
it is perhaps a good time for the befuddled world to start
considering building a de-Americanized world.”
China does have a broad strategy to prepare
for this event. She is encouraging the creation of an international
market in her own currency through the twin centres of Hong
Kong and London, side-lining New York, and she is actively
promoting through the Shanghai Cooperation Organisation
(SCO) non-dollar trade settlement across the whole of Asia.
She has also been covertly building her gold reserves while
overtly encouraging her citizens to accumulate gold as well.
There can be little doubt from these actions
that China is preparing herself for the demise of the dollar,
at least as the world’s reserve currency. Central
to insuring herself and her citizens against this outcome
is gold. China has invested heavily in domestic mine production
and is now the largest producer at an estimated 440 tonnes
annually, and she is also looking to buy up gold mines elsewhere.
Little or none of the domestically mined gold is seen in
the market, so it is a reasonable assumption the Government
is quietly accumulating all her own production without it
becoming publicly available.
Recorded demand for gold from China’s
private sector has escalated to the point where their demand
now accounts for significantly more than the rest of the
world’s mine production. The Shanghai Gold Exchange
is the mainland monopoly for physical delivery, and Hong
Kong acts as a separate interacting hub. Between them in
the first eight months of 2013 they have delivered 1,730
tonnes into private hands, or an annualised rate of 2,600
The world ex-China mines an estimated 2,260
tonnes, leaving a supply deficit for not only the rest of
gold-hungry South-east Asia and India, but the rest of the
world as well. It is this fact that gives meat to the suspicion
that Western central bank monetary gold is being supplied
keep the price down, because ETF sales and diminishing supplies
of non-Asian scrap have been wholly insufficient to satisfy
this surge in demand.
So why is the Chinese Government so keen
on gold? The answer most likely involves geo-politics. And
here it is worth noting that through the SCO, China and
Russia with the support of most of the countries in between
them are building an economic bloc with a common feature:
gold. It is noticeable that while the West’s financial
system has been bad-mouthing gold, all the members of the
SCO, including most of its prospective members, have been
accumulating it. The result is a strong vein of gold throughout
Asia while the West has left itself dangerously exposed.
The West selling its stocks of gold has
become the biggest strategic gamble in financial history.
We are committing ourselves entirely to fiat currencies,
which our central banks are now having to issue in accelerating
quantities. In the process China and Russia have been handed
ultimate economic power on a plate.