Why is China Hoarding Gold?

[Redtea]

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





redteanews

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[raganius]

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)

[51percemt]

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.

[Yakamoto]

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)

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.

[chennan]

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.

[E-valuta]

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.

[Robert Paulson]

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."

[polynesia]

All the same China could opt for a compromise position, something like Chinese Bitcoin; a digital exchange currency backed by gold.

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

[OROBTC]

...

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...)

[Sheldor333]

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.

[tabnloz]

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.

[raganius]

...

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...)

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

Thanks for the link.

[Unluckyduck]

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

[Daniel91]

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)

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.

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.

[scryptasicminer]

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.

[Malin Keshar]

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.

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.

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/

[Yakamoto]

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?

[CripLib]

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?

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.

[Brewins]

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?

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.

[Bitcoin Magazine]

because they like the color of gold (Gold)