Topic: Why is China Hoarding Gold? (Read 4112 times)

Even if China stops accumulating further USD, it would make a huge difference.

This is a very good point. Although the additional amount of gold that China is buying is huge for most people, in percentage terms of it's total asset holdings it is actually very small.

You know, what does changing to gold mean?

Nothing, in my opinion, unless VERY strict regulations are put in place.

Say I have $10 of gold, and I print 10 paper bills that can be exchanged for $1 each.

What is to stop me from printing more of them?

It's rarely explicitly stated how much a bill can be exchanged for, so I can print 20 bills, then 30, then 1,000,000...

Inflation and value don't mean a lot when backed by gold, all it means is that you can take your cash, exchange it for whatever amount of gold it's worth, since the value will keep dropping...

Gold-backed doesn't really help...

China's foreign currency reserves are massive, 3.3 trillion total and about 2.2 trillion of that in USD denominated assets.  Despite their recent build up in their gold holdings (to 1000 to 3000 tons, nobody knows the exact number) they hold a lot more "paper" US dollars for every gold dollar, e.g. gold is only about 2% of their foreign currency reserves.

If China ever moved in a big way from paper USD to gold, it would have a massive effect on the market.

The BRICs are missing non of this.. you have been warned, 2016 will be an interesting year.

You can either accept the fact it might be true that the BRICs plans to back the New Development Bank with gold or call it a crazy theory. Every single country in the BRICs has commented many times about the abuses of the IMF and America many times..  They have all called for a new reserve currency..  They launch in 2016.. 

In my opinion they really want to have future world reserve currency...

LOL. true gold?
Chinese companies may have accumulated up to 1,000 tonnes of gold for use as collateral in financing deals rather than to meet consumer demand in recent years. Most of this has been built up since 2011, when gold has been increasingly used as the basis for a variety of financial operations in China. 

Given the amount of T-bills that they hold, no amount of gold would be insurance.

They own insane amounts of US Treasury Bills. The gold is an insurance policy against a US default.

They are happy being second best for now. Once they become a developed nation, you never know.

Thinking of the Chinese establishing a new reserve currency at this point of time is far fetched. If you have RMB, you can't even purchase capital assets in China now!!

I don't think they are going to establish a new world reserve currency. They are always quite happy with being only the second best. My guess is that they hoard gold just in case dollar should fall. This way their gold reserves will serve a hedge against such a possibility. No matter what currency becomes a new dollar (or even if there is none), they would always have something to exchange for it, or just directly use their gold as money.

They have already abandoned the gold standard when US got off gold standard all money was truly Fiat, free floating money with no intrinsic value other than the value of the paper it is composed of. Maybe China wants to become the world reserve currency knocking the US off this position we have enjoyed for so many years. I guess they want gold so they can at least be part of a group of currencies that will compose the backing of a world currency. No gold no vote.

This.

The US facing off against China would be a long campaign that would end up with china winning.

Let's use numbers.

If China's infantry are trained 60% as well as American forces, that's still more than double the total training that the USA has. 4,000,000*60% as opposed to 1,000,000*100%

Plus China has lots of hardware, but so does the US, so it comes down to quantity as opposed to quality. An M1 Abrams can only take so many shells before one penetrates it, especially if there are 3 tanks firing at it.

This may be a bad example, but it probably illustrates it the best.

So China could very well beat the US, but it would be a long war.

1. The US military couldn't even conquer the Taliban, China has nuclear weapons.
2. China will end its oil dependency before the United States. (Compare their energy policies.)

If you don't understand that an official investigation into the causes of the Malysian airliner downing is still going on and at the moment is far from giving definitive answers, how can we believe your other points you bring forward?

There is nothing that indicates that the new digital currency of Ecuador will have any of the characteristics of a cryptocurrency. It is highly unlikely that it will be decentralized, transparent, algorithmically-constrained, or that users will be able to control their private keys.

They dont hoard only Gold, they also do Cotton and you will not belive, but also BTC 

OK,ok, fair enough. Just giving you a hard time. I'll check out the blog.

China only missing 2 more elements replace USD.

1) A military capable of defending itself.
2) Oil reserve.

Once they have both, US will be at its mercy for economy survival.

Basically China hoardes gold because it's a no lose situation for them.  Being one of the largest holders of USD debt as well as one of the largest stockpilers of gold put's them in a unique position to ultimately make a play on the USD as world reserve currency.  Just imagine Russian based oil sold for some Chinese denominated coin backed by actual gold?!  Stormy sea's on the horizon for our little Island of consumption I'm thinking.

...

Possum577

That is not what I wrote (putting 10% of our wealth into lottery tickets).  We have 11% or so in gold, not the Powerball.

I believe that gold is an excellent investment (that also provides insurance vs. .gov and bankster malfeasance).

Bitcoin is another asset class, IMO, that provides some more diversification.  But, I have less than 1% in BTC.  At this point, I trust gold more (as does China).

There is the real possibility, hard to quantify, that gold's price could go to the moon (Alice).  Some BTC commentators suggest that it too could reach nearly astronomical numbers.  My comment was that gold and BTC both shared this interesting characteristic, that they both could reach very high numbers.  But, each has a strong investment case as well even without such a quantum leap.  And if China keeps buying like they have, well, that might hasten the day when any gold you might own would be worth a lot more than now...

EDIT:

Consider taking a look at FOFOA's blog (in my link above).  That would be the equivalent of a two year sentence behind bars unless you like challenging gold reading written by a true pro.

I would rather say China is the one financing US' fiscal deficit. 

USD was backed by silver in the early 1900s through 1930s. Google "Silver Certificates"...

So you propose putting 10% of one's wealth into lottery tickets.

I think you misunderstand either investment fundamentals or why gold is good to have in your portfolio.

It's easy to judge people when sitting from the sidelines.

Think about it this way. You have a family of 300M, you need to provide for them but don't have enough cash (because you're at war or work's not going so well or whatever) so you decided to borrow some money...little, by little.

I'm not saying it's right but it's completely arrogant to reduce the context to "educated People aren't the brightest."

China hoarding gold?   You meant like how they were hoarding silver during the British Empire and the British responded by turning China into a nation of opium junkies?  Surely this will work better the next time!

Last I heard the CIA opium fields in Afghanistan are running at full production and they need new customers.  

Just the same as why they are hoarding Bitcoin: They know fiat will go to shit in the next decades so they are getting ready storing all kind of goods that will sky rocket.

And then there's China just sitting there, ignoring the plenty of land in Canada...

Eh, I'm fine with that. I think china may like us (Canada), but I can't speak for certain.

https://i.imgur.com/JRysOog.png

Gave me a good laugh.

Those damn chinks, always stealing our gold.....

China is hoarding gold and US debt because it will eventually have a gold back Yuan.

Why gold backed Yuan? Because one China's one child policy there is no way a welfare system (Ponzi/Pyramid Scheme) will ever work in China. So if Chinea wants to remain world largest economy etc, it needs a way to free itself from the crippling burden of a welfare state. Backing their currency with gold achieves this aim.

Why US debt? Because when China wants to convert to gold backing it will dump these dollars (probably to buy US agricultural land) to kill off US imperialism.

G x

what if they convert this gold to BTC

China's nouveaux riches too much. Gold so that they can have a more good bragging rights.
 China's Gold and much in demand.

China simply needs to hold a lot of assets because they have a large total amount of funds. Even if they held a small percentage if their assets in gold, by most perple's standards it would be a lot

Gold or silver?
Bitcoin or Litecoin?

because they like the color of gold (Gold)

Money was backed by gold until the 1970's, not by silver. Also the gold market is bigger, and it can be used to back things, that's why countries look for gold reserves, and less for silver.

Both are good ways to store money, but IMO, gold is best because it is easier to store. It takes a lot of silver in order to store any considerable amount of money.

So everyone likes good investing, but what I'm curious about is, what makes good superior to silver investments? I've heard mixed opinions, where someone says "Gold is a good investment because..." And others say "Silver is a good investment because..."

I own more silver than gold, but I do own both. So which should I focus on?

In case anyone re-enters the good standard, that gold could become very valuable... But silver has the best chance for growth...

So, what's your advice?

Same reason anyone buy gold: they think the economy may get in trouble in the future, and they are preparing for some fiat strong devaluation. Difference is that they have the secret service and an army of people to make economic plans and collect information, and ways to e active agents.




Hashdollar was a try in that direction, and was a complete failure. But also has not been launched by a major economic power.

Ecuador launched their own crypto, while turned holding , buying and selling any descentralized currency illegal
Depending of the results of the new Ecuatorian law, it may influence other countries to do similar.


http://www.coindesk.com/ecuador-bans-bitcoin-legislative-vote/

Smart thing to convert surplus of production into gold and other assets.

The wealth of nation is backed by the country production and productive assets.

Very good explanation.
I the past USA economy was very strong and on the top so US dollar become mainstream currency.
Now, as USA is in economic and financial crisis, not to mention their huge debt and China is stronger day by day (in economy and finance, not yet in politics and military but this is also just question of time), it's obvious that USA will loose their privilege position and China will take over, together with BRICS countries.

All major world powers have large reserves of gold should their currency completely collapse. Nothing new.

I agree, it's always smart to hold some gold.

Thanks for the link.

Russia and China are the two biggest buyers of gold at the moment. probably not a co-incidence. Gold is a hedge against a fiat implosion. In a currency war environment this is a rational strategy. If the US goes full retard then it's likely emerging market currencies falter first...

One theory out there is that this gold buying is a co-ordinated exercise to give all the major players time to get a relatively equal share of gold in relation to GDP. Then, gold gets re-introduced to the IMF currency basket, BRICS countries get a heftier weighting at the expense of the USD, which loses reserve status.

China isn't the only one that is hoarding gold, a lot of countries are doing it. It's just that they have lots of rich people now who can buy gold and so they do since it's still a nice investment to keep you money safe in a way. That is why there is a lot of BTC hoarding in China too.

...

China is just being smart, buying gold (and other hard assets) with all of their FIAT$.  Like the OP wrote, hardly anyone really knows what is going on in China and what their gold policies are.

Owning gold, in your own physical possession, is plainly smart.  Whether you are a country (China) or an individual (me).  How much gold to hold is up to each one of us.  I typically recommend 5% - 20% of one's net wealth to be held in gold, depending (we are at 11%).  Only about 1% of Americans own ANY investment (non-jewelry) gold.

Besides, gold and BTC do share one fun characteristic: they are both a lottery ticket that may come in large...  I wonder whether it will be gold or BTC that reaches FOFOA's $55,000 first...

fofoa.blogspot.com

Long and hard reading, start in 2009 (yes.....).  He is perhaps the top gold analyst in the world.

(No, he does NOT like BTC...)

What is to stop them from abandoning the gold standard at a later point in time, like the US did? 

because they know paper money is a scam.
after all they are one of the biggest scam artists in this field, which is why they convert their paper into real money.

to quote J.P Morgan in a testimony before congress right before he died:

"Money is gold, and nothing else.

If a man had the credit, and I had the money, his customer would be badly off."

Most of them end up being dead wrong?  Where have you been the last 10 years mate? China is hoarding goal and maxing out their credit because they know the Whole credit/debt based economy is about to collapse. Then it's a good idea to have something of real value, and not just stuff that's valued falsly within the economy.. yet another proof of how educated People aren't the brightest.

conspiracy theories is just imagination not practical. Buying gold because the gold is cheat now. Gold can be use as industrial meterial and jewelry which is precial. It can be investment if you have spare money.

This.

They want to diversify what they have, instead of huddling all their money in USD and then going down WITH the United States if the USd collapses. They're taking their accumulated cash, putting it into gold (To retain value over time) to help protect their economy.

Along with a lot of the talk about the re-institution of the gold standard in some countries - which will cause the US fiat to get hit hard - China may be interested in instituting the gold standard, since they're one of two countries the US can't just stomp in and invade.

But that's just a theory I came up with in my head, with some other parts of data included, so take it with a grain of salt.

China has a huge trade surplus win almost every country that it trades with. So it will naturally accumulate large amounts of this kind of assets.

Gold means stability and independence from the USD. Independence from the USD means more sovereignty, especially in a possible USD collapse. All the recent BRICS' talk about being more independent form the USD is an example for this tendency.

In order to maintain its exchange rates policy (keeping the value of the Renmimbi from appreciating versus the USD) China holds a massive amount of U.S. Treasury Bonds. They cannot simply dump it, for it would cause Yuan's appreciation, disturbing their exports.

At the same time, they also want to achieve the above mentioned stability, independence and sovereignty. That's why, maybe, little by little their intention is to substitute the USD they hold, diversifying it with other holdings like gold (and, who knows in the future, BTC).

(Just a guess)

Most of you know I don't buy in to conspiracy theories, most of which end up being dead wrong, though that never seems to dissuade the people fronting what turn out to be outlandish claims. Given that conspiracy theories abound, it does happen now and again that the facts to come together to suggest something so outlandish - it sounds like the plot for a Tom Clancy technothriller.

One of those facts that carries disturbing potential is that China is almost certainly stockpiling large quantities of gold. That claim is difficult to confirm because China isn't saying how much gold they have and you can't trust public announcements from them anyway. The lack of trust that's inherent in any story dealing with the Chinese necessarily adds an asterisk to the end of any definitive conclusions. That said, if the Chinese really are stockpiling gold the next question would be why? I can think of a lot of reasons a country would increase their supply of gold, none of them particularly good and definitely not any that align with our interests.

ZeroHedge.com does a pretty good job of outlining China's accumulation of gold and you'll find similar analysis at FastMarkets.com, SeekingAlpha (registration required) and Bloomberg.

Part of the influx of gold is doubtlessly to provide liquidity for the new gold exchange in the Shanghai Free Trade Zone but the amount of gold China has been stockpiling far exceeds the needs of the exchange. The exchange does provide China a convenient mechanism to monetize their gold holdings, should they decide to do so.

What makes the Chinese affection for gold so suspicious and potentially ominous is the amount of U.S. debt they carry, estimated to be in the range of $3 trillion dollars. One of the reasons the Chinese might hoard gold is if they worried that the value of those dollars was going to decline. Or, if you're conspiracy minded, you might be tempted to think they know the dollar was going to decline because they have some limited power to make that happen.

Another possibility is China making a play to become the world's reserve currency. I tend to discount that possibility because the Chinese are the biggest currency cheaters on the planet, a practice that's incompatible with being the world's reserve currency. Would any sane country really want to accept an exchange rate set by the Chinese government? I find that highly unlikely.

All the same China could opt for a compromise position, something like Chinese Bitcoin; a digital exchange currency backed by gold. I'm actually surprised someone hasn't done this already and China would definitely have the resources to make that happen.

For now the vision may be greater than the reality. If China planned on pursuing this goal with Russia and Venezuela as partners, they didn't exactly pick the most reliable posse. The Russians blundered on the world stage with the situation in Ukraine, which just blossomed into a public relations nightmare when their lackey separatist rebels shot down a Malaysian airliner. Venezuela has flirted off and on with bankruptcy since 2001; so much for their team-building skills.

Even China isn't big enough to take on the U.S. economically by themselves, but I'm sure they'll stay busy inking oil deals denominated in currencies other than the dollar. One thing is for certain; the Chinese are not our friends and hindsight would suggest that allowing our manufacturing capacity to leave America for Asia is looking like a really bad move right now. All that has accomplished is enriching a country that may be planning to launch a preemptive strike on our currency.






-RedTea
Independent News for the Right-Minded American





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