China Buying Gold On The Sly!
I just read this interesting article in the Financial Times. Seems like China has tired of US dollars and is looking to get rid of them.
Beijing Bets on Bullion
By Patti Waldmeir in Shanghai , Financial Times, 6 May 2009
China is expected to keep buying gold to diversify its vast foreign reserves after it recently revealed it had been secretively buying bullion.
Beijing and Shanghai-based gold industry analysts said the country had almost doubled its bullion holdings. But they said China was likely to make as many purchases as possible within its borders, rather than turn to international markets where it could push up gold prices.
Beijing’s exact gold purchasing intentions are a state secret, but industry analysts are betting on more purchases as Beijing has been clear about its desire to diversify its foreign reserves away from the US dollar. Although gold is quoted in dollars, its price usually rises when the dollar weakens.
The analysts base their bet, at least in part, on the history of another buyer: Russia. After Moscow announced it was buying bullion, it regularly disclosed information revealing almost monthly increases in its gold assets.
“I’m absolutely sure that they will continue buying because China’s gold holdings are very small in terms of the size of its economy and the growing significance of its currency,” says Paul Atherley, managing director of Leyshon Resources in China. “But we will find out about it only after they have done it.”
China’s current gold reserves represent only about 1.6 per cent of total foreign reserves, a vastly smaller percentage than the world’s average of 10.5 per cent. Nevertheless, its percentage is similar to the 2.2 per cent in Japan, the world’s seventh-largest holder. The challenge for Beijing is to attain a similar diversification, requiring large amounts of gold, without disturbing the market.
Hou Huimin of the China Gold Association, forecast that China’s gold reserves could rise in the long term to as much as 5,000 tonnes. “It won’t be a leapfrog achievement but a gradual increase along with the country’s economic status.”
One potential source of gold for China is the International Monetary Fund’s expected sale of about 400 tonnes of bullion. Analysts said Beijing could try to purchase a block of that sale in an off-market agreement.
China last year overtook South Africa as the world’s largest gold producer and is estimated to have produced 282 tonnes of gold. Some gold from state-owned producers goes directly into Beijing’s gold stockpile every year. Gold purchases from state-owned producers can be made secretly and at below-market prices, making them more attractive than international purchases.
In addition, turnover at the Shanghai gold exchange rose nearly threefold between 2007 and 2008 but it is impossible to know how much of that, if any, may have been reserve buying, analysts said.
I wonder if they’re buying any American Buffalo Gold coins 
The US mint considers it a bullion coin.
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May 7th, 2009 at 6:49 am
It *is* a bullion coin… copper bullion.
May 7th, 2009 at 9:13 am
Great information on China’s intentions. I am sure they want to diversify their reserve currency, and we want them to. China needs to disconnect from the dollar so that its currency floats free and there products get more expensive as their currency strengthens.
As for an effect on the price of gold, the article makes the point that China is doing as much gold buying as it can, internally. This means the buying is not through the open market and has no effect on supply and demand, so does not influence the price of gold. Only countries with large reserves and state-owned gold mining can do this. But don’t look for Chinese central bank buying to help the world gold price.
May 7th, 2009 at 9:26 am
quite right Brian, infact i read a report somewhere that china wanted the IMF to sell its gold. The report hinted that it wanted the IMF to sell the gold directly to them and not on the open market!
May 10th, 2009 at 2:22 am
China’s currency won’t automatically float just because China diversifies its reserves. Until or unless China agrees to make its currency fully convertible, it won’t be floating freely, no matter what kind of currency or commodities it holds in reserve.
In the long run, China certainly will allow its currency to strengthen– in fact, it already has, considerably, against the dollar, over the past few years. In the long run, China doesn’t need the US to buy its products. Even now, the US buys only a minority of China’s exports, something like 19%. As China (and other Asian countries) get richer, there will be other buyers, and in the long run, China wants to sell more of its products to its own market.
So any one in the US who thinks that they’d like a stronger RMB, well, rest easy, because China wants it, too, and it’s going to happen– but on China’s time. On the other hand, I’m not sure that every American who thinks he/ she wants this will actually like the result when he/ she gets it– the US does, after all, need SOMEONE to buy that American debt. Unless, of course, Americans prefer to have the government just raise taxes.
May 10th, 2009 at 6:02 pm
Most debt we owe to China is a result of our trade imbalance with China due to our imports of cheap consumer goods, The idea that China is just loaning us money like we are some banana republic is naive and misinformed. China has wanted to index the American dollar to make sure its export products maintain their competitive price advantage against other non-indexed countries, primarily Europe. Japan has historically used a soft-index to the dollar and routinely manipulates the yen exchange rate to maintain competitive advantage. China does so in a much more significant and less discrete way.
You are right, some Americans won’t like the result of a delinked RMB. But not for the reason you give. If America owes less to China, it won’t necessarily have to make up the difference with higher taxes. The cost will be that we import less cheap goods and the price of consumer products increases and perhaps we buy less “stuff”. The net effect is an inflation in consumer goods prices due to an improving domestic economy in China. This is good for China and good for America. Our trade balance comes more into line, a major foreign power holds less of our debt that comes from managing the profits of its exports against our currency, Chinese people live better buying their own domestic produced goods, Americans learn to pay more for (hopefully) better made, higher quality, more environmentally and socially acceptable from domestic production sources, and perhaps we even put more of our own people back to work in the process.
June 15th, 2009 at 11:36 am
People in America need to realize jus what got America in this shape…”cheap” yes so-call cheap items from a foreign land.
quote*Wal-Mart firmly believes in local procurement. We recognize that by purchasing quality products, we can generate more job opportunities, support local manufacturing and boost economic development. Over 95% of the merchandise in our stores in China is sourced locally. We have established partnerships with nearly 20,000 suppliers in China. *end quote!
Now! if there be 182 country’s making items for the world to buy and they have only 5% of the pie in China…duh! This company makes the nice people of China support their currency(yuan) by keeping it in their country working for the people there…. but with the “yuan” going up in value and the US dollar going down…all the foreign items that the American consumer buys thinking it is cheap has went up in price.
People…its all about the currency and to keep a currency strong you got to keep it floating around the country you live in so it can work for you. For the past 12 years all them US dollars are being shipped overseas to a foreign bank and with the American worker not making anything for the foreigner to buy the “we the people” have to turn to the “second” largest employer in America(Uncle Sam) to sell “we the people” debt in order to get all them dollars back!
50 years ago a foreigner would had given their left nut for a US dollar or a Hershey’s chocolate bar and today the same foreigner has got Uncle Sam and the American consumer by both all the while Hershey is moving the chocolate factory to Mexico. Wake up! America and think “MADE IN AMERICA.”
quote*”Considering that there are over 30,000 ships at sea this morning,” writes James Carlton, director of the Williams College-Mystic Seaport Maritime Studies Program, in an e-mail, “the total number of organisms and species in this global ‘bioflow’ on the morning your readers read your piece could be staggering – billions of individuals, and thousands of species.”
Indeed, scientists have long considered ballast water the primary way invasive aquatic organisms are introduced. From the zebra mussel’s arrival in the Great Lakes, to an American jellyfish severely disrupting Black Sea fisheries, the potential costs of accidental introduction of a species to new homes can be tremendous. Aquatic invasives cost the US $9 billion yearly, according to estimates by David Pimentel, professor emeritus of ecology and evolutionary biology at Cornell University in Ithaca, N.Y. Zebra and quagga mussels (a cousin to the zebra) alone cost the $1 billion annually.*end quote!
tat is $9 billion a year in hidden taxes to all Americans…
cheap ain’t chic and it cost America…………jobs!