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XMFSinchiruna (27.77)

China Secretly Stockpiling Gold Since 2003!!

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April 24, 2009 – Comments (34)

This is a monumental development within the gold market, as it makes public something I've known to be true. Those like me who've been watching gold carefully for years noted the seamless way in which central bank gold sales were absorbed into the market with only mild impacts upon price, and surmised that a nation with substantial foreign reserves was converting chunks into gold to reduce exposure to USD assets.

This article proves that my assumption was correct, it further documents China's distates for the present fiat currency reserve system based on the USD, and it should finally silence each and every person out there who dismises gold as either a speculative commodity or a forgotten relic. It is neither... gold is money. Just ask China.

http://www.financialpost.com/news-sectors/story.html?id=1530063

China admits to building up stockpile of gold

SHANGHAI/BEIJING - China revealed on Friday that it had secretly raised its gold reserves by three-quarters since 2003, increasing its holdings to 1,054 tonnes - or a pot worth about US$30.9-billion - and confirming years of speculation it had been buying.

Hu Xiaolian, head of the State Administration of Foreign Exchange, told Xinhua news agency in an interview that the country's reserves had risen by 454 tonnes from 600 tonnes since 2003, when China last adjusted its state gold reserves figure.

The confirmation of its surreptitious stockpiling is likely to fuel market talk about Beijing's ability to buy secretly and its ambitions for spending its nearly US$2-trillion pile of savings. And not just in gold: copper and other metals markets are booming thanks to China's barely-visible hand.

Speculation has gathered speed over the last year, since the tumbling dollar has threatened to weaken China's buying power - and give it yet more reason to diversify into gold, oil and metals.

Gold prices jumped on the news of Chinese buying and were up more than 1% on the day at US$912.05 an ounce at 0715 GMT. By a Reuters calculation, China's holding of gold would be worth around US$30.9-billion at current prices.

That accounts for only about 1.6% of China's total foreign exchange holdings and is little more than one-tenth of the value of the U.S. gold reserve, the world's biggest. It also means gold has slipped as a share of China's total reserves from about 2%, based on end-2003 prices.

Only six countries hold more than 1,000 tonnes, and China is ranked fifth, having leap-frogged Switzerland, Japan and the Netherlands with its announcement.

However, the International Monetary Fund and the SPDR Gold Trust exchange traded fund are even bigger, leaving China with the world's seventh-biggest pot of gold.

Several gold market participants said they thought China had bought on the international market, helping to absorb hundreds of tonnes sold off by central banks and the International Monetary Fund in recent years.

"China has been buying via government channels from South Africa, Russia and South America," said Ellison Chu, director of precious metals at Standard Bank in Hong Kong.

But Hu said the increase in China's stocks was achieved by buying on the domestic market and from domestic producers.

China is the world's largest gold producer and does not permit exports of gold ingots, only jewellery, leaving plentiful supplies for the domestic market.

China produced 282 tonnes of gold last year, meaning the state bought around one quarter of domestic production, assuming 454 tonnes increase in state purchases were spread out over the six years since China last reported a change in its holdings.

Despite the rumours, buying by the state was partially obscured by soaring demand for gold as an investment, especially after the bursting of the Shanghai stock market bubble last year.

Investment demand in China rose to 68.9 tonnes from 25.6 tonnes in 2007. But that was still less than one third of retail demand in India, where total bullion consumption topped 660 tonnes last year.

Hu said China recently reported the change in its gold holdings to the International Monetary Fund and would include the latest change in central bank reports and balance of payment statistics.

She did not say when China notified the IMF.

Although gold rose after Hu's comments were published, the price move was not a huge one for the highly liquid market. Prices had jumped by US$13 in the space of an hour on Thursday.

Gold market participants said the news signalled likely further buying by China.

"The comments indicate that China will buy more gold as reserve to improve its foreign reserve portfolio. This is a trend," said Yao Haiqiao, president of Longgold Asset Management.

Hou Huimin, vice general secretary of the China Gold Association, said China should build its reserves to 5,000 tonnes.

"It's not a matter of a few hundred, or 1,000 tonnes. China should hold more because of its new international status, and because of the financial crisis," he said.

"The financial crisis means the U.S. dollar value is changing fast, and it may retreat from being the international reserve currency. If that happens, whoever holds gold will be at an advantage."

The European Central Bank recommends its member banks hold 15% of their reserves in gold, but among Asian nations the percentage is far smaller, said Albert Cheng, World Gold Council managing director for the far east.

 

34 Comments – Post Your Own

#1) On April 24, 2009 at 10:32 AM, TMFFlightsuit (< 20) wrote:

Chris,

I must admit I've been better able to see the logic of your arguments over the past few months--watching our economy deteriorate and our government pursue wasteful and asanine fiscal policies. Heck, I even bought some Silver to buffer the rest of the portfolio.

But let's have a bit of perspective here. From the article:

That accounts for only about 1.6% of China's total foreign exchange holdings and is little more than one-tenth of the value of the U.S. gold reserve, the world's biggest. It also means gold has slipped as a share of China's total reserves from about 2%, based on end-2003 prices.

So, the country has relatively less gold than it did 6 years ago. It has a whole lot less than the US does (it probably can't buy as much as it wants to--probably constrained by supply--a good thing, I'd say). Furthermore, their gold holdings constitute a relatively meaningless portion of their total reserves.

Hahah, I mean: These are the salient facts within this article. Aren't they?

Don't get me wrong. I love to see them buying pricey gold and redistributing some of that welath towards the rest of world. ;-)

But is it not possible they're just attempting to get back to post-collapse levels?

Even if they wanted to double their holdings, it would still be a relatively small portion of their worth. The balance of their reserves continues to sit in Dollars and, sadly for them, there's not much they can do about it.

Thanks for the ongoing commentary, Chris. I like learning from you precious metals folks. I certainly don't always agree, but I feel more prepared having read it.

 -Nick

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#2) On April 24, 2009 at 10:38 AM, TMFFlightsuit (< 20) wrote:

Apologies for the various spelling and grammar errors. Still can't edit these posts--blast.

 But is it not possible they're just attempting to get back to post-collapse levels?

 *pre-collapse

 

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#3) On April 24, 2009 at 10:59 AM, kaskoosek (62.38) wrote:

Is 30bn stock piling?

 

That is loos change. The panic hasn't even started yet.

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#4) On April 24, 2009 at 11:01 AM, Schmacko (61.43) wrote:

Gold isn't money.  It's not liquid enough to be money.  I can't buy my groceries with gold.  Chinese companies can't buy raw materials from other emerging/developing countries, pay them in gold, manufacture and ship finished goods to the US (or wherever), and receive payment for those goods in gold.  Gold is a valuable commodity that people and countries recognize as a hedge against currency exchange rates.  It's just a way to diversify wealth. 

Gold, as is all by itself, can't become a new reserve currency for similar reasons.  Theirs not enough of it floating around at current price levels to fufill that roll.

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#5) On April 24, 2009 at 11:07 AM, XMFSinchiruna (27.77) wrote:

Hey Nick,

Thanks for the comments. It's amazing how differently two pairs of eyes can view the same news. :)

I certainly would never have presumed that China had been increasing its gold as a percentage of total reserves when that monstrous trade surplus was packing in the USD at a dizzying pace. There is only so much gold, and any purchases in much greater amounts would have been confirmed through its price impact long ago.

No one that I know can say with any certainty how much gold the U.S. holds. Modern audits have failed to include physical inspection of Fort Knox, and documentation of gold swaps in FOMC reports raises sufficient questions that a physical audit of the bullion and more importantly documentation that the bullion is unencumbered are required before the state of the U.S. gold reserves can be known by the public.

As for what they can do about their USD reserves, there is plenty that they can do and are doing. They are settling many foreign transactions in yuan now, they are spending their reserves on strategic assets, and promoting the SDR reserve regime through the IMF.

 

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#6) On April 24, 2009 at 11:16 AM, XMFSinchiruna (27.77) wrote:

kaskoosek

$30 billion in gold is a major amount. You need to study the physical market.

Schmacko 

at currenct price levels... exactly. :)

No one's suggestong that gold will become fixed to this unimagineably huge mountain of fiat paper and debt floating around our planet, but there are many ways in which its role as money will gain significance in this context. Watch and see.

You think it';s an accident that China and Russia want gold included within the SDR basket of currencies for the proposed new reserve currency regime?

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#7) On April 24, 2009 at 11:21 AM, mustbepatient (29.40) wrote:

Sinch, I'm actually surprised they haven't been adding more.  I didn't even realize China's gold buying was a secret.  I view this news as long-term bullish because it means the current price rise has come as a large future gold buyer hasn't been doing much gold buying at all.  However, this is a short-term negative in my view.  If China is disclosing that it purchased gold now, I seriously doubt they are looking to buy more in the near future.  Think about how Buffett tries to hide new purchases until he has finished accumulating if possible.

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#8) On April 24, 2009 at 11:23 AM, whereaminow (23.21) wrote:

very interesting. good find sinchi.

Schmacko,

Actually you can buy your groceries with gold.

David in Qatar 

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#9) On April 24, 2009 at 11:24 AM, EHoyle80 (< 20) wrote:

China is moving out of its 1.9 trillion “dollar dependency” and heavily into base and rare metals. The Stock Research Portal says, “That ought to be positive for base metals,” but “I don’t see that leading the U.S. to recovery in the near term given the U.S. losses in manufacturing jobs and continued monthly trade deficits.”

Via Stock Research Portal

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#10) On April 24, 2009 at 11:29 AM, XMFSinchiruna (27.77) wrote:

P.S.

There are only about 155,000 tonnes of gold in the world. The stash referred to in the above article is, therefore, about 1/155 th of the total world supply.

The point of the article is not that they sought to corner the market, but rather that a clandestine effort to convert USD to gold has been ongoing since 2003... if you look at a long-term USDX chart and a gold chart next to it, it's easy to understand why.

China will absolutely be stepping up these efforts in the very near future, with a commensurate impact upon prices forthcoming.

It vexes me that people still don't understand what's happening. :) I know people will always come to different conclusions from the same body of evidence, but in this case the stakes could not be higher. I wish I felt I were wrong about all this, because that would mean we stood a chance at real economic recovery, perpetuation of the USD reserve system, and a far greater likelihood of maintaining the present balance of economic power in the world (for better or for worse, who knows?). Unfortunately, the evidence points in a different direction. The dolar must go much lower, and gold must go much higher. Pure, and simple.

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#11) On April 24, 2009 at 11:32 AM, whereaminow (23.21) wrote:

Sinchi,

If everyone knew what was happening, the dollar would already be destroyed. People would have moved out of it long ago. 

Have you ever read The Deliberate Dumbing Down of America

David in Qatar 

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#12) On April 24, 2009 at 12:10 PM, Schmacko (61.43) wrote:

whereaminow,

my local harris teeter doesn't accept e-gold payments, so no you can't.  After looking at the wiki page about e-gold I can't think of why anyone would actually use that service since they offer no protection for their users against fraud/hackers.  If e-gold is remotely like the 100% reserve banking models proposed in that paper you posted in the blogs recently, then that model is full of fail.

 

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#13) On April 24, 2009 at 12:16 PM, whereaminow (23.21) wrote:

Actually he does. You can transfer e-gold payments to paypal and use your Visa.

I don't promote the service. I'm just pointing out that it's there. 

As for 100% reserve banking, are you trying to make an argument or are you just vomiting on your keyboard?

David in Qatar

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#14) On April 24, 2009 at 1:01 PM, whereaminow (23.21) wrote:

Sinchi,

It actually hasn't been a secret that China is stockpiling gold, it has just been ignored by American media.  Here is the gold reserves by country in 2007 via CIA Fact Book.

Looking strictly at M2 from 2007, China had $4.8T in circulation, or 28.2T yuan vs. gold reserves of $1.5T. The U.S. had $7.2T in circulation vs. gold reserves of $70.2B.

By that simple methodology, the yuan appears to be fantastically undervalued via the gold-exchange standard, but modern currency valuations take into account more factors.

I'm by no means a currency trading specialist. In fact, I've never made a single currency trade in my life.  I'm going to examine this further, but for now, I'm led to believe that the yuan is a BUY.

Your thougths?

David in Qatar

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#15) On April 24, 2009 at 1:26 PM, XMFSinchiruna (27.77) wrote:

whereaminow

That link is not gold reserves, that's an outdated tally of total reserves including gold. :)

 

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#16) On April 24, 2009 at 1:44 PM, whereaminow (23.21) wrote:

ahhhhhhhhhhh.... i feel stupid AGAIN!

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#17) On April 24, 2009 at 3:02 PM, Schmacko (61.43) wrote:

whereaminow

I'm assuming you're talking about a paypal visa?  Paypal is owned by e-bay and e-bay seems to be anti e-gold:

"eBay policy

Beginning January 2006, eBay has restricted buyers and sellers from using many online payment systems and encouraged them to use Paypal, which is wholly owned by eBay. eBay specifically named e-gold as one of the online payment systems that will result in them cancelling a seller's account if used.[27]"

That's speciifaclly about purchases on e-bay, but it doesn't make sense to me that they would accept e-gold in one aspect of their business but not another.  Which doesn't mean it doesn't happen, just that it doesn't make sense.  And if I'm going to buy things demoninated in dollars and pay for it with a credit card why would I want to constantly subjugate myself to the fuctuation of gold prices by paying that credit card off with gold?  Why not just pay it off in dollars?

As to 100% reserve banking, I was making an opiniated statement, which is both different than an argument and vomiting for the uniformed. 

An argument against 100% reserve banking (using the e-gold model as a basis) is that you are in actuality paying the bank to hold your money... which, to me is a pretty foreign concept.  Sure, you can draw 100% of your account at any time, but you're also losing money over time.  Why would I choose to do that over a) keeping my money in a safe in my house or b) keeping my money in a bank that pays me interest?  The only pro argument is piece of mind in knowing that their can't be a run on the bank, but with the current FDIC rules in place most depositors are protected from that anyay.

If you're going to argue the end to central banking and the FDIC, and government regulation, then I still can't necessarily see why a 100% reserve model would be better than say a bank keeping 50% of it's currency in reserve, paying it's customer interest on deposits (would have to be higher than the current rates given by banks due to the increased risk of not having a govt safety net), and continuing to make money through loans and variances in interest spreads.  If you're going to argue completely against govt regulation banks would be able to pick and choose their own models and I would think banks paying interest to depositers are going to attract more customers than those charging money on depositers.    

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#18) On April 24, 2009 at 3:05 PM, XMFSinchiruna (27.77) wrote:

whereaminow

Hardly, this blog post of yours was pure genius. :)

The root of all evil in our financial predicament, precisely, traces back to the very structure of our fiat system that has farmed out the sovereign roles of money creation and fiscal oversight to a shadowy banking cartel called the Federal Reserve. Our founding fathers would be rolling in their graves.

Well done!

 

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#19) On April 24, 2009 at 3:16 PM, XMFSinchiruna (27.77) wrote:

Schmacko

First of all, you can buy groceries with gold bullion if you so desire. Because of the oddities of our present fiat monetary regime, however, one would be foolhardy to do so. Gold bullion coins from the U.S. mint, however, are indeed legal tender and cannot legally be refused as a form of payment according to their face value. Again, such a transaction is certainly not in your best interest, but it serves my point well. Gold is even still technically money the U.S. today, as well as in England, Canada, Australia, etc., etc.

That whole tangent is moot, since your inability pay bills or buy groceries with gold bullion says nothing at all about whether or not gold is money. I've been toppling that irrational argument here for years, and here i go again:

You can't walk into a grocery store and purchase food with Euros either, and yet Euros are money. Think of gold as a foreign currency, if you like... one that must be exchanged prior to spending. That is precisely how the central banks of the world view gold, precisely how Fed chairmen like Alan Greenspan view gold, and so I will suggest once more that it is every bit appropriate for you all as individuals to view gold in the same way.

Everywhere you go in the world, you will find people, banks, and coin shops that know full-well the value of an ounce of gold and will happily exchangeit for whichever currencies are accepted there. Try that with the Icelandic Krona and see how far you get. :)

Gold is money: it's a fact, not an opinion.

 

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#20) On April 24, 2009 at 3:38 PM, XMFSinchiruna (27.77) wrote:

Trader Dan strikes again  :)

http://jsmineset.com/

Gold bulls managed to build on yesterday’s technical gains and moved prices on up and into the 40 day moving average before selling appeared the blunt the change higher. It has still not broken free of that downsloping trendline which dominates its daily chart but it is closing in on it. The short term 10 day moving average has turned up which is friendly especially since gold bounced higher off of its rising 100 day moving average but the 40 and 50 days are still moving lower. Thus there is still no clear trend that has been defined – the long term is up (rising 100 day MA), the intermediate is still down (falling 40 and 50 day MA) and the short term is up (rising 10 day MA). That works to give a bit of a mixed signal which is why we need to see further strength next week to build on this week’s impressive performance. Price must take out both the downsloping trendline and the 40 day MA and then 50 day MA to give the bulls all the wind at their back. Bears are hoping to thwart the rise near $920 - $925. The weekly chart looks much better now.

The mining shares as indicated by the HUI and the XAU outperformed their counterpart at the Comex. The HUI in particular has victory within the bulls’ grasp if it can maintain it gains going into the closing bell today. It looks to have confirmed a double bottom near 275 as long as it can close convincingly above the 305 level. A failure here when it closes will embolden bears. That is why it is critical that bulls stand their ground if they hope to engender more short covering and attract new allies. As price now stands on that index at the time I am writing this, it has moved above last week’s high, taken out the 40, 50 and 20 day moving averages, bounced from the 100 day moving average and flipped the 10 day MA higher. It still has some work to do to repair the sharp plunge that occurred in the first week of April but the price action is quite bullish in the short term.

Euro gold has been hovering near the 680 level and thus far looks to be finding fairly good support near that region the last few days. Sterling gold is oscillating around the 610 level. It would be helpful to see it stabilizing and moving higher from here as the ideal setup for sustained gold rallies is a simultaneous move higher for gold priced across a wide basket of currencies. Remember, the last leg higher in gold was led by a move higher while priced in terms of the European currencies. Gold rallies that tend to be only in Dollar price terms do not have the staying power that the alternative does.

Speaking of the Dollar, it suffered a major technical setback in today’s session plunging beneath the 10 , 20, and most importantly, the 100 day moving average. The weekly chart is threatening a breakdown of a bearish pennant formation which would tend to validate the double top formed just above the 89 level. The Dollar has significant double bottom technical support near  83.50 on that same chart and if that were to give way we could see a sharp, swift move down to near the 82 level. It will have to climb back above 87 to get out of immediate danger. For the most part it continues to move inversely to the US equity markets falling when they rise and rising when they fall.  I should note here that the measure of risk sentiment, the Euro-Yen cross, is strongly higher today.

Gold deliveries for April reached 1.28 million ounces. The last two trading days, open interest has increased in the April gold contract and deliveries have increased also. The stoppers obviously have clients who want physical bars or are obtaining them for their own accounts.

Copper recovered a large portion of yesterday’s losses today but it is difficult at this point to say whether this was just shorts ringing the cash register after its sharp decline from the $2.20 level this week or the end of a correction in price after a prolonged, sustained rally dating back to March of this year. Next week’s price action will be most telling as to its future course. Copper has been drawing support from Chinese buying of the metal for restocking purposes and should that buying abate for any reason, it will be left to fend for itself

Crude oil not only managed to claw its way back to the $50 level but exceeded that and pushed on up almost $52. Between strength in crude, sugar and the metals, the CCI (Continuous commodity Index) moved higher today recapturing just about all of this week’s previous losses. It continues to move along a gently, upcurving or rounded bottom formation. It is evident that the commodity markets are no longer pricing in deflation but have now moved to a more forward looking inflation problem down the road ahead. Only a break below the December 2008 low would cause me to change that view. As stated here previously, a rising CCI is beneficial for gold. Again, the kind of chart pattern being carved out by this index is one that does not anticipate a sharp upturn in economic activity but rather a sort of rising crawl out of the current morass. At some point the inflationary impact of the reckless quantitative easing policies of more than a few Central Banks is going to turn this index into a steeper uptrend in price. We will be able to see the shift in psychology take place by monitoring this chart. My fear is that this genie will in no wise be able to be shoved back into his bottle.

That brings me to the action in the bond market. After managing a brief bounce yesterday and allowing the bond bulls to breathe a sigh of relief, bonds resumed their downward trend within that broad range defined by the huge range day of the Fed’s quantitative easing announcement. Bonds are now within a whisker of taking out the low of that day (16 ticks to be exact). If they do break down, the Fed’s intention to artificially prop up the market and by consequence shove long term rates lower, is going to be severely tested. It is looking increasingly likely that the bond market vigilantes – those extinct or at least hibernating species – are making a reappearance. And why should they not? The sum of money that is being printed into existence is a virtual guarantee that the plague of inflation is going to descend on this nation and consume all that it touches, in much the same fashion as the locust swarm did to biblical Egypt. Thus far the locusts have not visited us – but price action in the bond market will tell us when to expect their arrival. The scene I envision in my mind as I watch the price action in the bonds is a picture of a peasant with a straw broom in his hand wildly swinging away at a cloud of locusts swarming all around him and attempting to beat back the millions of invading insects in the desperate hope of avoiding complete ruin.

About the only saving grace that I can see for the bond have been equity weakness. If equities fail near current level then bond bulls will probably dodge a bullet. Barring that however, they are in a tenuous condition to say the least.

Meanwhile US equities continue to move blithely higher in apparent obliviousness to all that ails us. My pal Dave informed me this AM in an email that insider selling has reached levels last seen in October 2007, right before the market peaked and the 17 month bear market began. That is something that should not be ignored.

 

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#21) On April 24, 2009 at 5:04 PM, Schmacko (61.43) wrote:

Sinch,

You can technically buy a $1000 US gold bullion coin and exchange it for $50 worth of groceries.  Dictionary.com does even have an entry stating "gold, silver, or other metal in pieces of convenient form stamped by public authority and issued as a medium of exchange and measure of value."  So yes technically you're right.  You cannont however exchange at fair value $50 worth of gold for $50 worth of groceries (at least not in the US).  You cannont take ignots, bars, nuggets, dust, etc. and buy things with them. 

As to gold being like a foreign currency vs. a commodity still seems shaky to me.  Using the same logic you used taken to an extreme level I could take a rare comic book (say first appearance of spider-man) to an appropriate venue and "exchange" it for $1000s of dollars and then go spend that money.  The fact that I can find someone who recognizes the value of my comic and get money from them for it does not make my comic money.  It makes it a collector's item.  Same could be said for American eagle gold coins.  They have a face value but generally are only held by collectors. 

Gold the unminted, uncoined metal is a commodity.  I would argue it's exactly the speculative commodity you talk about in your original post.  Governments, hold it as a hedge.  It's a valuable piece of yellow metal, whose only real use IS the fact that people percieve it to be valuable. 

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#22) On April 24, 2009 at 8:20 PM, Alex1963 (28.46) wrote:

Hey Sinch

I was intrigued by this article and did some very amateurish poking arong on the web

10 minutes of surfing found The World Gold Council http://www.gold.org/  after joining for free I was able to download an excel spreadsheet with data gathered thru 1/09 entitleld  World Gold Holdings. I'm sure you are aware of them but if not they have other spreadsheets avail all for free.

 World Gold Holdings – volume and value 

There are 3 tabs going back to 2000 and updated thru 1/2009.  For the US the data goes thru Q3 2008 but China only thru the Q1 2008 where the total stood at:

1. FX Reserve ($US Millions) US from $54,081.1 to $60792.93, China from $821,474.1 to $1,684,280.5

2. Total reserves (US$ Millions) US from $131,893.6 up to $292,088.8 This showed China slowly increasing their reserves from $163,262.1 to $1,702,287.7. Just what I'd expect, a much larger percentage and dollar increase for China.

3. Gold as % of total FX Reserves: US from 54.7% up to 79.2% China 2.1$ down to 1.1% 

Some countries have had a large %s then far less like Russias 24.6% down to 2.4% others have no (Chile) Others have also slowly upped their percentages. China by the way has the same percentage as Malta. 

Plus the article states "China produced 282 tonnes of gold last year, meaning the state bought around one quarter of domestic production, assuming 454 tonnes increase in state purchases were spread out over the six years since China last reported a change in its holdings."

Hmm Ok but it would appear accurate data is still available somehow since this spreadsheet does seem to match up fairly well in the areas it overlaps your article. I know I'm missing something-what is it?

Obviously these figures by themselves beg more questions than they answer such as overall money supply for each country etc. You could extrapolate in completely opposite ways it seems to me.  

Another spreadhsheet  Changes in official reserves statistics

showed very large negative moves by reserve banks for years as far as reporting to the IMF was concerned. Russia apparently is violating an agreement to step up it's reserves to 10% with it's program of vastly decreasing it % or reserves over the last few years for instance.  

My questions are these. Is this info correct as far as it goes? Do you feel that China's "secret" gold stockpiling goes beyond what is reflected here? Either way it seems a pretty insignificant in the large picture because plenty of other countries have also increased their holdings. But I'm not the expert you are.

Thanks in advance

Alex 

 

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#23) On April 24, 2009 at 9:29 PM, Alex1963 (28.46) wrote:

 whereaminow 

FYI the yuan is not traded as a a currency. China does not allow it. To make bets on the yuan you are forced to do so indirectly by either buying  targeted ETF's Or ETNs like FXI, PGJ, GXC etc. Or buying Chinese equities like Bidu or CHL, SU, STP etc. I have a "practice" forex acct with www.oanda.com and dearly wish I could trade the yuan once I open a RL acct, as do many of the forex pros. Another way is to buy or short a currency ETF for Australia like FXA, Japan FXY or other big China trading partners but to me that's way too oblique. The last way is to simply buy their currency and hold it in a bank that specializes in this type of dealing.  

Peter Schiff insistes that the best way is to get with a broker who can buy direct form the Hong Kog exchange because the ADR stocks are diluted slightly by fees and will further diluted by the exchange rate of the plummeting dollar. It turns out Euro Pacific can do that for you! Golly. LOL But e-trade also participates they say in many foreign exhanges and that's a route I've been considering From their website "... their platform covers six markets: Canada, France, Germany, Hong Kong, Japan and the U.K. Investors can buy and sell local currency stocks in real time by logging on to their global account on the Web site. ..plan is to one day offer all 42 markets where it's currently a market maker to its customers via its global trading platform online."  

Also you should know you cannot currently open an account with egold.  gold. I've been trying to see what's invloved in a new account for days now and I finally called them to see what was up. They claim they are switching the new account software tho there is is no explanation. Just the message "New account creation temporarily suspended'" They assured me there were no legal issues but did agree that they should put up a better message by way of explanation on that screen. Since they have no 800 number that was an expensive phone call they could easily have saved me. Not too impressed so far but I guess we'll see. 

Also they have issues with the BBB

"Based on BBB files, this business has a BBB Rating of F

Reasons for this rating include: Failure to respond to complaints filed against business

Name:Gold & Silver Reserve IncPhone:(321) 951-4338 Address:2117 S Babcock St, Melbourne, FL 32901
Business Category:Diamond Buyers. BBB file opened:November 30, 1999 Business started:January 1996 Primary Contact:Mr Douglas Jackson, MD (President) Complaint Contact:Mr Jim Ray (Lead Evangelist) Other Contacts:Mr Barry Downey  (Sec)
Mr Charles Evans  (Exec Vice President)

According to information supplied by the company, Gold and Silver Reserve (G & SR) offers an on-line exchange. The company offers to establish and maintain an e-metal account for consumers. An e-metal account allows consumers to use gold, silver and other monetary metals as a medium of exchange, like money. The company charges a fee and/or commission for its services.The info matches the e-gold website info as to the founder and has the same phone #. 

here's the link http://www.orlando.bbb.org/newsearch2.asp?ComID=07330012001344


This concerns me somewhat but maybe you have an account and haven't had any issues?

I hope my post has added value to this blog 

Alex

  

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#24) On April 24, 2009 at 9:36 PM, whereaminow (23.21) wrote:

Alex,

Awesome info. Thank you!  I saw the E-Trade Forex stuff in my inbox today and checked it out.  It said you have to buy minimum $10,000 contracts.  For a person like me who clearly has no clue in currency trading, I'm going to let that opportunity pass me by.

As for e-gold, I've also been keeping my eye on them but nothing more than that.  I think they were shut done originally by the SEC for operating as a competing currency.  I would not be shocked if their current operational setup is still non-compliant with U.S. law.  I certainly wasn't planning on using them myself, just throwing it out there that such concepts do exist. Though they are in the experimental stage obviously.

Thanks for all the links.

David in Qatar

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#25) On April 25, 2009 at 11:56 AM, Alex1963 (28.46) wrote:

David 

No problem. My pleasure

But you can open a forex account with smaller amount amounts of money. If you're really interested surf around in Oanda some more. Most beginners start out trading smaller amounts like $2500. The interesting part is you can choose the amount of leverage that $2500 wil buy. They reccomend you open a Play account which is free and try at least 100 trades til you get a sense for your accuracy. In forex I have read that being right 60% of the time makes you stellar and earns you mega bucks. Being right 1/3 is quite profitable if you make proper stop loss and trailing stops with your trades. Just like the stock market. The forex markets are open 24/7/365 and there's always an up market somewhere. That's been the attraction for me. The equities markets are all very irrational & hard to predict lately IMO and turtle slow by comparison. A typical active forex trader will have 2-3 or up to a dozen contracts going per day which they may be in and out of in 15 mins to afew hours. You can make "short" bets as easily as long and for the same $s. With stock options the restrictions and minimum account needed for margin call protection are prohibitive. I'm not willing to tie up that much capital just to short. I confine myself to covered calls thru my broker but the upside is minimal. By contrast, I've been experimenting with open ended forex trades (no stops) where all I do is set the "take profit" parameter on my up or down bet. It might take a day, a week or more. Meantime depending on the exchange rate I'm earning, or losing, very small amount of interest. In a play account you are automatically given 100,000 and each trade the system automatically calculates your profit & margin used in your home currency as you make your trade paprameters. A typical trade profit for a small lot size of 2500-5,000 is maybe $300-$500 dollars in the more popular & strong currencies. It's easy to hedge by making a simultaneous bet the opposite to what you really think will happen to protect you if the trade goes against you. But yesterday for instance I made a play for XAU/USD (troy gold ounces vs US$) and my leveraged $500 US could become $13,000 if my trade is successful. There are forums there, tips for beginners etc. I've made about 50 trades so far and am up about $7500 and I'm still a big time newbie as to the intracacies of the trades, exchange rates and margin calls themselves but learning fast by doing. The only downside is philosophical for me. Forex trading adds no real tangible value to the world. Sure I can "vote" on a countries fiscal policy, politics etc but I don't feel I'm adding value to "the system" like I do with stock purchases. It's all sort of play money in forex. A derivative activity in a sense. But it is really fun and tests my politcal and economic acumen like nothing else. Like you I enjoy and follow global politics & events regularly anyway. This gives me way to profit from any insight I might have.

There are other site/platform options I believe one is http://www.forexmicrolot.com/ where you can buy as little as one lot of a currency. $2.50 US minimum dollar amount and an account opened for $250.00. Pretty darn affordable. Obviously do your research before selcting a company for real as where they are based and therefore regulated, their size and "net excess" capitalization, are critical. 

I subscribe to a few services for free and sometimes get good ideas. One is called The Sovereign Society (I think you'd like their politics, too LOL-I mostly don't) but they have two guys who write daily on currency trades and activity.http://www.worldcurrencywatch.com/ , For free daily research/events of note http://www.dailyfx.com/

The other guy is great: The Elliot Wave Practictioner. He uses TA to tracks a wide range of US & global market indices, Tbills, oil & other commodities and forex. He also regularly posts 10 min videos designed to to help people learn EW TA as well as show how he has arrived at his judgments. He has been incredibly accurate for the month or so I've tracked him. You can get his daily emails and charts emailed for free for a month.

www.the-elliott-wave-practitioner.com 

e-gold: Well they insist they are in full compliance and I'm still intrigued by the concept but obviously I'd like to go thru the account applic to see what's involved. I also am concerned that they claim there are no fees but BBB says they do charge fees which I would expect. Not having an 800 number is also to me a red flag for a company which has been around since '96 and has their supposed volume as is failing to respond to complaints filed with BBB. Maybe I'll report back to you, if you'd like on the details, if I am ever able to get them. 

I hope this adds some value to this blog (and fun) to your investing 

Good luck

Alex 

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#26) On April 28, 2009 at 2:34 AM, speedybure (< 20) wrote:

Go China!

Nice post   TMFSinchiruna

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#27) On April 28, 2009 at 1:08 PM, binve (< 20) wrote:

Sinch, Nice post man! Can't say I am surprised at all.

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#28) On April 28, 2009 at 1:36 PM, catoismymotor (42.45) wrote:

I wish I had $14 billion in gold bullion. Instead I have $10 trillion of debt hanging over my head. Oh, bother!

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#29) On April 28, 2009 at 1:51 PM, Alex1963 (28.46) wrote:

Sinch,

Was my post 4/24 unworthy of response? I keep checking back- but no reply?

Thanks

Alex 

 

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#30) On May 03, 2009 at 11:55 AM, XMFSinchiruna (27.77) wrote:

Alex1963

Hi Alex,

sorry for the delay getting back to you. While I don't have the time to go through the spreadsheets you link to, I will be happy to share my overall impressions.

First off, China's break-neck pace of growth fueled by a booming export economy meant that USD reserves were increasing uncontrollably and unsustainably. Nonetheless, any conversions from USD to gold must be done with utmost care not to spark either a big spike in gold prices nor a major selling event in USD. When you're the world's biggest holder of USD reserves, the world watches your every move. 

Meanwhile, the U.S. has been running a massive trade deficit for as long as I've been financially aware, with the predctable result that the world's biggest economy by GDP has a puny litle FX reserve base from a nominal perspective of just $61 billion using the numbers you provide above. Comparing percentages of gold holdings to FX reserves loses much of its significance when the nominal scales of those reserves are so enormously out of whack relative to GDPs. In other words, the U.S.'s apparently large % of gold to FX is more a product of the U.S.'s crippling trade deficit and general state of indebtedness than anything else.

Do I view China's increase in gld holdings as insignificant just because other countries are following suit? Absolutely not! China is a special piece of the puzzle that represents the fate of the USD. Their increasing appetite for gold on a nominal basis, regardless of percentage, corresponds with their decreasing comfort with the scope of their USD reserves. When their export economy was cruising, China could not avoid the massive increases to USD reserves, but with that trade stalled, they have arrived at a critical crossroads, and all indications are that they are set to stop bankrolling our further additions of debt which they see as fundamental impairments to the USD. The fact that other countries have increased gold holdings as well, as you report, is just more bullish given the scarcity of gold supply and the reported inability of major miners like Barrick to replace reserves in this environment.

I would have to see the data to confirm your statement about countries adding to gold reserves, however, since selling under the Central Bank Gold Agreement was surprisingly robust in recent years despite the risin price for gold. I would have expected selling by ECB and others to show a decline in nominal gold holdins by many major economies... most notably the ECB. Did your data show a nominal decline for ECB gold holdings?

Finally, as to the question of the U.S.'s gold holdings, I have no faith that the official number is an accurate accounting of the unencumbered gold holdings of the Treasury. As I've stated elsewhere, the lack of a proper audit that actually inspects the purported bullion or vouches for the lack of an encumberances thereon is a glaring cause for concern for those who base assumptions upon that official number. GATA has caled for an independent audit on that basis, and I share their skepticism that the vaults of Fort Knox contain the unencumbered treasure the Treasury claims.

Thanks for your comments.  :)

 

 

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#31) On May 06, 2009 at 5:58 PM, Alex1963 (28.46) wrote:

TMF Sinc

Is my face red! I whine about no reply and fail to chaeck back here for 3 days.

Well I hope you do check the spreadsheets. My point was that this site does seem to have been adjusting it's figures and ratios for China each year tho they corroborated that China had not actually reported the increase to The World Bank (Or IMF?). So I agree people are "watching their every move" but not just on US $ but every major sector & commodity. and I guess I'm surprised that it too 6 years for the news of China stockpiling (or adding) to filter thru.

Pargaraph 3 I agree exactly. I hinted at that same conclusion. % orf reserves is meaningless with out other data to give it perspective & relativity. However,  why would the home of the world's reserve currency hold large FX reserves? Furhter am I correct that the US by all accounts is still the country assumed/considered to hold the largest amount of gold?  

Paragraph 4 I agree somewhat but again they also have plenty of motivation to increase reserves just to keep pace with world economic parity of roughly 10% gold to reserve currency, right? I don't know that 6 years ago when they 1st began to stockpile they would have been nearly as concerned about the US$ strength as the last few years.  When Bush took over from Clinton our economy had a somewaht different complexion. We had a budget surplus at least on paper & using standard globally recognized methods for determining this. China may have been building a massive trade imbalance with us but it benefitted them tremendously also. They have seemingly become concerned now that the tide has turned. An outcome, I am speculating, they were also rather unprepared for and in fact did not anticipate, not to this degree anyway. They missed it like most everyone else in a position to affect their fiscal/trade/reserves position. If they did try to address ths isssue wth the Bush Admin I also assume that it was likely treated sa low priority concern what with Iraq, Katrina and myriad domestic and international gaffes, global & domestic misteps and scandals etc. I'm going to predict we'll hear more about this in years to come, tho.

Paragraph 5-6: Please, do review the monthly report of gold reserve activity by country. Some increased, others decreased. As I said Russia's reserves decreased dramatically over the 8 years. If Barrick & others had trouble locating inventory to buy I can only imagine Russia was swapping for strategic purposes-not offering on "the open market". Unless their decrease is also due or partly due, to their "bubble" of oil profits. Also if our stock market and economy continue to defy predictions of collapse I don't think China failing to buy T-bills at their usual pace will cripple us. They'll be other buyers, IMO. And having their remaining holdings massively debased would hurt them tremendously. They may continue to "throw good yuan after bad" to prop us up a while longer. I'm thinking that's exactly what they'll do. Again, to me it's political, not just fiscal. They stand to gain a lot by appeasing us as they become aggressive in their goal of superpower primacy.

Paragraph 7 I have no opinion on this. I'm sure you have ample reason for concern. I will poke around a little. A that does sound like an iortant issue to be informed about

The more I try to read & learn about investing in general the more it leads to big picture issues like this. Thank you for "schooling me" some in your opinions. It's pretty cool to have such an expert willing to exchange ideas. 

Regards

Alex 

 

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#32) On May 06, 2009 at 6:12 PM, Melaschasm (54.24) wrote:

What really caught my attention in the original post was that China's gold accumulation was domestic, and that domestic gold can only be sold as jewelry.

I suspect that China was buying gold in part to increase employment in the mining sector.  China is still a long ways from capitalism, and the added bonas of buying domestic gold at prices likely lower than international prices makes the strategy seem very logical. 

I expect that China will continue to buy up excess production of domestic gold for many years.  They can store it as a reserve, and stop buying when it is in higher domestic demand for manufacturing/jewelry.

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#33) On May 06, 2009 at 8:28 PM, XMFSinchiruna (27.77) wrote:

Melaschasm

You might be on to something there, but I still think USD concern pas the primary driver for their gold purchases... but that does also make your suggestion a viable strategy.

Alex1963

Thanks for a long and thoughtful comment back. :)

Central Bank gold sales never reach the open market. Period. :)

You ask: "Furhter am I correct that the US by all accounts is still the country assumed/considered to hold the largest amount of gold?"

Some do assume that, I do not! I would like to see an independent audit of the bullion with the burden of proof to establish that bullion is also unencumbered (leased, essentially, or made the basis of derivative contracts, etc.). I don't believe it's just sitting there, no. I also have my doubts about the ETFs, FYI.

I don't think you have it correct that China's purchases as recently revealed were tracked by WGC. I will put the question to them.

On your response re: paragraph 4:  I don't share those suppositions about how that may have played out. If I were to imagine the scene unfolding, though, I would see it differently.

Russia was in the process of leveraging its own growth under the assumption - which I shared - that commodities would retain pricing strength during a crisis of this nature. I still think that is the case, but that the normal course has been forestalled by powers that be.

Keep plugging away, and I will contact WGC about the China question. If you're right, that would definitely be interesting.

Thanks for the discussion. :)

Chris

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#34) On May 07, 2009 at 7:28 PM, Alex1963 (28.46) wrote:

Chris

Thank you for your detailed reply.

So if a Central bank sells reserves-if indeed that is what Russia did, then they would sell to other soverignties? Or the IMF? 

I couldn't follow  these 2 paragraphs:  

"On your response re: paragraph 4:  I don't share those suppositions about how that may have played out. If I were to imagine the scene unfolding, though, I would see it differently.

Russia was in the process of leveraging its own growth under the assumption - which I shared - that commodities would retain pricing strength during a crisis of this nature. I still think that is the case, but that the normal course has been forestalled by powers that be"  

No doubt ny own ignorance of this overall subject. LOve to have you flesh that out if you have time. Fine if you're too busy. 

 Should I keep this post on my radar in case you do have time to check the WGC data? Or continue  reading your posts and articles as always. I know that after a while it must be impossible for you to track all the older articles and posts for responses.

All the best

Alex 

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