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China's gold back story

There appears to be a multi country effort to (re)build gold backed
currencies, and there's every chance they will succeed, certainly even
in the face of crypto currencies - the robustness and security levels
of current computing facilities means hoarding physical gold is likely
seen by most, and certainly by nations, as more secure and acceptable
to the public psyche.
<end personal prattle>


China Embraces Gold In Advance Of Post-Dollar Era
Tyler Durden's picture
Submitted by Tyler Durden on 04/16/2016 20:50 -0400

Submitted by Koos Jansen via AllChinaReview.com,

To challenge the US dollar hegemony and increase its power in the
global realm of finance, China has a potent gold strategy. Whilst the
State Council is preparing itself for the inevitable decay of the
current international monetary system, it has firmly embraced gold in
its economy. With a staggering pace the government has developed the
Chinese domestic gold market, stimulated private gold accumulation and
increased its official gold reserves in order to ensure financial
stability and support the internationalisation of the renminbi.

    â??The outbreak of the crisis and its spillover to the entire world
reflect the inherent vulnerabilities and systemic risks in the
existing international monetary systemâ?¦. The desirable goal of
reforming the international monetary system, therefore, is to create
an international reserve currency that is disconnected from individual
nations and is able to remain stable in the long runâ?¦â??

    Quote from Governor of the PBOC Zhou Xiaochuan 2009.

In the present zeitgeist we find ourselves on the verge of a shift in
the global monetary order. The shocks through the financial complex in
2008 that reaffirmed the innate fragility of the US dollar as the
world reserve currency have sparked China to become a vocal proponent
of de-Americanization, although its end goal is communicated less
clearly. Being the second largest economy of the world but relatively
in arrears regarding physical gold reserves, China has a strong motive
to surreptitiously work on its gold program until completion. For, if
it would be candid in its gold ambitions, the price would
significantly run higher, potentially disturbing financial markets and
narrowing its window of opportunity to prepare for the next phase.
State Council Rapidly Developed Domestic Gold Market And Stimulated
Private Hoarding

China has been infatuated with gold for thousands of years. In the
mainland, gold mining and use can be traced back to at least 4,000
years ago, and the metal has always represented economic strength and
was regarded as the emperorsâ?? symbol of power. Although the Communist
Party of China captured the monopoly in gold trade and heavily
restricted private gold possession since 1949, in lockstep with the
gradual liberalisation and the ascend of the Chinese economy the state
started to develop the domestic gold market in the late seventies,
which accelerated in 2002.

A new page was turned when the Gold Armed Police started operating in
1979, not coincidentally a few years after the US detached its dollar,
the world reserve currency, from gold. This army division was
initially assigned to gold mining exploration and has done so quite
fruitfully. Since 1979, Chinese domestic mining output has grown 2,137
% from an annual 20 tonnes to an estimated 467 tonnes in 2015. In
1982, the first steps were taken in reviving Chinaâ??s gold retail
channels. For the first time since 1949 people were allowed to buy
jewelry and the China Gold Coin Incorporation started issuing Panda
coins. The Peoples Bank Of China (PBOC) continued to be the primary
gold dealer that fixed the price and controlled all supply flows.

The real reform of the Chinese gold market was implemented on 30
October 2002 by the launch of the Shanghai Gold Exchange, erected to
serve the full liberalisation of the domestic gold market. From that
date the fixing of the gold price in China was transmitted from the
PBOC to the free market. In 2004, the State Council approved gold as
an investment for individuals and the PBOC slowly repelled control
over supply flows. The Chinese gold market fiercely rose from its
ashes. By 2007 the market was functioning as intended when nearly all
gold supply and demand was flowing through the SGE system6. A year
later, in 2008, the Shanghai Futures Exchange launched a gold futures
contract supplementing existing derivatives at the SGE.

The Shanghai Gold Exchange (SGE), which is a subsidiary of the PBOC,
is the very core of the Chinese physical gold market. Its
infrastructure provides a single liquid exchange overseen by the
state, granting all participants a trusty venue that can be
efficiently developed and monitored. The mechanics of the Chinese
market incentivise nearly all supply and demand to connect within the
SGE system. As a consequence, by the amount of gold withdrawn from the
vaults of the SGE â?? data that was published up until December 2015 in
the Chinese Market Data Weekly Reports â?? we could gauge Chinese
wholesale gold demand.

After the crisis in 2008, it became apparent in the higher echelons of
the Chinese government that the development of the gold market and
private accumulation had to accelerate to protect the Chinese economy
from looming turmoil. Through state owned banks and media wires the
citizenry were stimulated to diversify savings into physical gold.
Currently, at Chinese banks, numerous gold saving programs can be
entered into, or individuals can open an SGE account and purchase gold
directly in the wholesale market.

    â??Individual investment demand is an important component of Chinaâ??s
gold reserve system, â?¦. Practice shows that gold possession by
citizens is an effective supplement to official reserves and is
essential for our national financial security.â??

    Quote by the President of the China Gold Association 2012.

When the gold price came down sharply in April 2013, Chinese gold
demand literally exploded as in a once in a lifetime event. In between
22 and 26 April, 117 tonnes of physical gold were withdrawn from the
vaults of the SGE.


China has been a gigantic gold buyer ever since. Withdrawals from the
vaults of the SGE in 2015 accounted for 2,596 tonnes (90 % of global
annual mine output), up from a mere 16 tonnes in 2002. SGE withdrawal
data correlates with elevated gold import by China.

Whilst clearly enjoying their bargain purchases, China has established
a trend of increasingly obfuscating the true size of its gold demand.
Not long ago several reports were released in the mainland that
disclosed total gold demand to be the equivalent to SGE withdrawals.
Since 2012 these reports have been hidden from public eyes and in
January 2016 the SGE ceased publishing withdrawal data10. Although
annual SGE withdrawals have exceeded 2,100 tonnes since 2013, what is
generally publicised as gold demand is roughly half of this, merely
the demand at jewelry shops and banks that excludes direct purchases
from individual and institutional clients at the SGE. As a result, the
global consensus is that Chinese gold demand is approximately 1,000
tonnes a year though in reality itâ??s twice this volume.
PBOC Accumulating Gold To Support Renminbi Internationalisation

To free itself from US dollar supremacy and force the sequent monetary
system, Chinaâ??s goal is to internationalise the renminbi. For
achieving its target, gold is identified as the key. It is the
absolute monetary asset to support the renminbi, the dollarsâ?? Achilles
heel and a hedge during monetary stress. Next to the swift progression
in the Chinese private gold market we can observe the PBOC is covertly
buying gold and has launched the Shanghai International Gold Exchange
to prepare renminbi internationalisation.

    â??For China the strategic mission of gold lies in the support of
renminbi internationalization, and so let China become a world
economic powerâ?¦. Gold is both a very honest asset and forms the very
material basis for modern fiat currenciesâ?¦. Gold is the worldâ??s only
monetary asset that has no counter party risk, and is the only
cross-nation, cross-language â?¦ and cross-culture globally recognized
monetary asset.

    That is why in order for gold to fulfill its destined mission, we
must raise our gold holdings a great deal, and do so with a solid
plan. Step one should take us to the 4,000 tonnes mark, more than
Germany and become number two in the world, next, we should increase
step by step towards 8,500 tonnes, more than the US.â??

    Quote by the President of the China Gold Association 2014.

Not surprisingly, Chinaâ??s strategy is everything but linear. Let us
analyse the State Councilâ??s most recent actions with respect to gold
and the internationalisation of the renminbi. In addition to gold
accumulation, the State Council has aimed to kick start renminbi
internationalisation by having it included into the International
Monetary Fundâ??s (IMF) basket of currencies, the Special Drawing Rights
(SDR), in 2015. For acceptance, the IMF required openness of Chinaâ??s
international reserves, of which the PBOC hadnâ??t updated its gold
reserves since 2009. Here we found the PBOC stretched between opposing
forces; it obviously preferred to hoard gold in concealment not to
disturb financial markets, while at the same time it was requested to
open its books. In July 2015 the PBOC decided to revise its official
gold reserves by 604 tonnes to 1,658 tonnes, which was probably not
the whole truth but served both means, as markets barely reacted to
the increment â?? the gold price has not increased since then â?? and the
IMF has granted annexation of the renminbi into the SDR.

-How much gold does the PBOC truly hold-? Before we make an estimate
we must first address the question, how and where does the PBOC buy
gold?  --Some analysts assume the PBOC buys gold in the domestic
market at the SGE. According to my research this is not true. My
sources in the bullion industry tell me first hand that the PBOC buys
gold in the international OTC market using Chinese banks as proxies.
And this intelligence fits into the wider analysis, as there are many
reasons why the PBOC would not buy gold through the SGE.--

A rough estimate suggests the PBOC holds nearly 4,000 tonnes in gold
reserves, more than twice the amount they officially disclose. In a
quest for any clues we must visit the heart of the gold wholesale
market. Data by the London Bullion Market Association points out there
have been approximately 1,700 tonnes of monetary gold exported from
London between 2011 and 2015. Chinaâ??s central bank is the foremost
suspect for these purchases, given its size and motives, and the
tonnage exported from London is consistent with other sources that
state the PBOC has bought roughly 500 tonnes a years since 2009. All
clues together point to the PBOC holding roughly 4,000 tonnes
currently. Although this remains speculation.

--More of Chinaâ??s gold strategy was revealed by the recent launch of
the Shanghai International Gold Exchange (SGEI) that offers gold
trading in renminbi for clients worldwide, in an attempt by China to
strengthen the internationalisation of the renminbi.--  In itself the
SGEI clearly underlines Chinaâ??s gold ambitions16, but the punch line
was added with the launch of the Silk Road Gold Fund in 201517. Led by
the SGE(I), the $16 billion fund will boost the gold industry along
the Silk Road and in turn â??will facilitate gold purchases for the
central banks of member states to increase their holdings of the
precious metalâ??, according to the Chinese state press agency Xinhua18.
Not only is China trying to persuade all mining and consumption of
gold along the Silk Road economic project to be settled through the
SGEI in renminbi, additionally the Chinese promote gold as an
essential component of central banksâ?? international reserves going

--We must conclude that the State Council views gold as part of the
coming international monetary system.--  Why else does it quickly
develop the domestic gold market to be embedded in financial markets,
surreptitiously accumulate vast gold reserves and establish a
framework to boost gold business on the Eurasian continent around the
SGEI?  -In my view, China contributes significant value to its gold
strategy in the shadow of the apparent failure of the current fiat
monetary system. And if true, Chinaâ??s central bank having nearly 4,000
tonnes of gold is well on its way to introduce the next phase.-

Links from the comments:


Why China hides their gold reserves?

    Recommend this article:

      Comments: 1 »

Chinaâ??s main goal is to internationalise yuan (CNY) and add it to the
currency basket of the International Monetary Fund. To succeed China
needed to update both of their currency and gold reserves. Last update
in 2009 put Chinese reserves at 1054 tons.

Speculations about how much gold is held by the Peopleâ??s Bank of China
(PBC) seem to have no end.  The newest update was quite a shock. It
was stated that reserves amount to 1658 t and not to 3500 t as it was
commonly perceived. Allegedly reserves were growing only by 100 t per
year during last six years.

Publication was pushed by the IMF, but in my opinion the official
numbers are understated by a huge margin. Recently in one of my
interviews I highlighted that it is more than possible that number
given by authorities will be smaller than the true reserves but even I
was surprised with 1600 t levels.

Why Chinese did not publish their true level of reserves?

a) The IMF negotiations.

It has been several years since China and IMF are discussing adding
the yuan to the currency basket. Special Drawing Rights (SDR) is a
portfolio of dollar, euro, pound and yen. For years Americans having
the right to veto blocked any negotiations and changes.

It may be that in exchange for somewhat cosmetic change of the Chinese
gold reserves the US government agreed to smoothly include second
Asian currency to SDR. Still the US dollar is the biggest loser here
and consequently the US.

Around October the news may break that CNY after 5 long years of talks
will be officially added to the currency basket.

b) Currency reserves

Substantial majority of Chinese currency reserves worth 3.7 trillion
USD is held in short-term US government bonds. Informing the markets
that government reserves equal 5000 t rather than 1050 t would raise
question not only about the source of this plentiful stash of gold but
also who doesnâ??t have it anymore. This second part is very important
here. This uncertainty could push the price of this precious metal up
and distort delicate balance in the foreign exchange markets. Chinese
have big stake here equal to 98,4% of their currency reserves.

c) Importing at Black Fridayâ??s pricesâ?¦ to be continued

Regarding gold reserves of the Peoples Republic, Roland Wand â??
chairman of Chinese World Gold Council branch â?? said that â??gold
amounts to 1,6% of Chinese reserves, while the ideal situation would
5%. If China announce today that 5% of currency reserves are in gold
the result would be huge climb of global demand and the price of gold.
This is not in the best interest of our citizensâ??.

Last but not least, government actively encourage its citizens to
invest their savings in gold.

What are the goals of China?

>From 20 years Chinese economy is the leader of fast growth. According
to PPP China is the number one economy in the world. While in many
aspects international arena still treats them as developing country.

Chinese policy will eye several goals in near future:

a) Internationalisation of yuan to change its stance from being
transactional currency to reserve one. Thanks to that China will paint
more trustworthy picture of itself on the global stage.

b) Preparing ground for solid currency (loosely bound to gold) with
simultaneous transformation of economy â?? from centrally planned to
free market.

c) Owning substantial currency reserves guarding against results of
bursting speculative bubbles (stocks, real estate) in the local

d) Diversification of dollar reserves into various assets

e) Developing of alternative (not-western) market. New silk road and AAIB.

f) Dethronement of the US as the global hegemony.

Letâ??s now see how much gold PBC really has.

a) Production.

Source: Koos Janses, BullionStar.com

>From 2009 to 2014 gold yearly production increased from 315 t to 450
t. Most of the mines are owned by the state and there is a ban for
gold exports.

Since the announcement of official reserves in 2009, approximately
2200 t of gold had been produced. Share of this amount went through
Shanghai Gold Exchange (SGE) to individual consumers. What was left
probably resides in PBCâ??s vaults. Ratio is not yet known.

b) Official imports

Gold is imported to China through SGE and then to the market. Last six
years SGE noted the sell of 7000 t of bullion. It is safe to say that
majority ended up in Chinese hands as it is traditional medium of
amassing wealth. Substantial share was snatched by various funds
wholly owned by the state.

c) Unofficial imports

All gold passing from country A to B is recorded. Exception from the
rule is gold coins bought by central banks and government agencies. As
long as the gold is in coin form there is no available information
about its volumes and flows from one country to another. China is able
to import big volumes of aurum through government agencies and have
this imports hidden from official reports.

Similar situations were described by Jim Rickards in the second part
of his book:

â??One of the high level G4S directors (global logistics company) shared
that he himself transported gold to China through mountain massif.
Transport was guarded by Peopleâ??s Liberation Army supported by armored
vehicles. Gold was in 400 oz â??good deliveryâ?? ingots used by central

It is very hard to estimate volume of Chinaâ??s government reserves. One
thing is for sure that 1660 t is too small of a number. According to
different calculations Chinese already accumulated from 4-8 thousand
tons. Some estimates talk about reserves being over 10 thousand tons
but personally I think it is exaggeration.

>From Chinese officials and also from central bankâ??s side we may have
heard rumors that government is able to import around 500-600 tons of
gold while still having stable gold market. Recent Dutsche Bank report
seem to confirm this data. In general it is very unlikely that
reserves are below 4.5 thousand tons.


The big problem of central bank reports is their lack of
accountability. The bank can say one thing but average investor has no
chances to verify it.

The US claims sine â??50s that they have 8500 tons of gold. There was no
audit since then. Germany claims 3000 tons but majority is abroad.
This makes it hard to distinguish whether they have the gold or its
â??paper promise of returnâ??.

China is no different. Central bank still holds only 1660 tons even if
another 3000 tons are held by funds controlled by the very bank
itself. Formally everything is square.

Chinaâ??s gold lets them play a very successful game with the US.
Recently Uncle Sam had to accept the change to SDR basket. Next time
it may be other area of Chinese interest which will be focused, time
will show. On global scale this game is played not only for profit but
rather for control. Control is the biggest prize here.


[Enormous number of links in this article, so just quoting the first
paragraph without the hyperlinks; enjoy]

Wednesday, 11 June 2014
IMF May Move From D.C. to Beijing, Chief Says
Written by  Alex Newman

IMF May Move From D.C. to Beijing, Chief Says

Days after attending shadowy meetings with top globalists and a member
of the Chinese Communist Party Central Committee, International
Monetary Fund boss Christine Lagarde (shown) shocked the world by
saying IMF headquarters could someday move from Washington, D.C., to
Beijing. The spectacular statement, which came after her attendance at
the infamous Bilderberg summit and the Rothschild-organized â??Inclusive
Capitalismâ?? conference, came amid an ongoing establishment effort to
prepare the world for major economic and political changes in the
coming years.


Contary to the facile observations of "gold analysts" partial to
playing up "East vs West," "BRICs vs. PRICS." type memes, the Lloyds
and China LLC have been deep in conversation - through both pre & post
Mao eras. Just like with Russia, the entire "Chinese Revolutionary"
movement was a construction of WallSt/ThreadneedleSt; there have been
no changes in ownership since that early phase - just shift in tactics
( https://storify.com/SuaveBel/from-giants-to-pygmies ).

The so-called NWO has selected Sinoland as the next repository for
their planetary ambitions. Since Deng Xiaoping, the leadership has
been given a mandate - not exactly from "Heaven," but most certainly
to do "God's Work." And thus, carefully schooled in adopting the most
current western financial techniques, in order that they accumulate
the necessary heft in the financial arena for this changeover to
happen. They have also been intensely schooled in the limits to their
autonomy of action - the current downturn in the economy being
engineered with precision to demonstrate the perils of too much
'independent deviationism.'

There is a degreee of rebelliousness to all of this - the Xi regime is
composed of many layers of wily insiders, including some who are true
Sino-nationalists, aware of who's been messing with them for the past
century. That's what makes things interesting, watching what goes down
in the Middle Kingdom. And totally screws up the "analysis" of faraway
western-based writers who script their stories to silly comicbook
scenarios like BRICS and "death of the dollar."

Price suppression in gold and silver has been dictated by the policies
of those in control of China's financial fortunes for the past 5 years
- in conjunction with their agents of influence in western markets.
When they decide its time to change direction, so to will the POS/POG.
Until then, beware the revisionist dogma of consensus trance "gold
experts" peddling the stories which the puppetmasters use to cover up
their schemings.