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How much gold does China really have and how will it be used?
1:43p ET Saturday, April 4, 2020
Dear Friend of GATA and Gold:
A friend writes:
"Here's a question for you.
"People like GoldMoney's Alasdair Macleod have stated that China has 20,000 to 25,000 tonnes of gold. Does this total refer just to the People's Bank of China or does it include all the gold that the central bank and the people of China have?
"Is it possible that the total is much higher -- that the central bank has 20,000 tonnes and the Chinese people have another 12,000 tonnes for a total of 32,000 tonnes?
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"If and when China dumps its $1 trillion in U.S. Treasuries and buys more gold and then backs its currency, the yuan, with gold, the yuan could become the world reserve currency, accruing for China all the associated benefits.
"My take is that the the Covid-19 situation will result in deflation followed by inflation and hyperinflation. China is doubtless aware of the precarious financial situation of the United States. Will China take advantage of this?
"Once again. How much gold do you think China has, including both the central bank and the people?"
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The gold directly possessed and controlled by the Chinese government is surely greater than what the government has reported.
We know this because China has reported its gold reserves at irregular intervals with big jumps in reserves between intervals. That metal was not acquired all at once but over time during which there were no public updates to reserve totals.
We also know that other countries sometimes have held gold in accounts not reported to the International Monetary Fund. Saudi Arabia got caught doing this in 2010:
I long have argued that, for the world's major powers, the true location and disposition of gold reserves are secrets more sensitive than the location and disposition of nuclear weapons. That's because nuclear weapons can only destroy the world, but, as U.S. Secretary of State Henry Kissinger's assistant undersecretary for economic and business affairs, Thomas O. Enders, told him in a meeting in April 1974, control of gold is control of all currency valuations and thus control of the world.
Their conversation was transcribed and eventually posted at the State Department's archive and can be found here:
Alasdair is far better informed about China than I am. Also far better informed is the prolific writer and financial analyst Jim Rickards, who has had U.S. government security clearance and seems to concur with Alasdair. Jim has often said that the Chinese military has acquired gold in other countries and shipped it home and that China assigns state-owned banks to hold gold that is not reported in the country's official reserves.
How much gold is in the possession of the China's population generally? Surely much of the metal that has been counted in Shanghai Gold Exchange reports is held by individuals, and that gold might be requisitioned by the Chinese government if necessary. Indeed, in 1998 South Koreans gave much of their gold to their government, 227 tonnes, to repay debt to the IMF during a foreign exchange crisis:
https://en.wikipedia.org/wiki/Gold-collecting_campaign
Gold reserves support any government's currency because they can be used for intervention in the currency markets. There has been much official confirmation of this.
The Reserve Bank of Australia has acknowledged it in its annual reports from time to time, as in 2003 --
http://www.gata.org/files/ReserveBankOfAustraliaAnnualReport2003.pdf
-- when the bank wrote:
"Foreign currency reserve assets and gold are held primarily to support intervention in the foreign exchange market. In investing these assets, priority is therefore given to liquidity and security, in order to ensure that the assets are always available for their intended policy purposes."
William R. White, the director of the monetary and economic department of the Bank for International Settlements, the central bank of the central banks, told a BIS conference in Basel, Switzerland, in June 2005 that a primary purpose of international central bank cooperation is "the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful":
The BIS constantly and surreptitiously intervenes in the gold market for its central bank members, as GATA consultant Robert Lambourne regularly reports --
-- and has actually advertised to potential central bank members that its services include secret interventions in the gold market. Here is a slide from a PowerPoint presentation the bank made to prospective central bank members at BIS headquarters in Basel in June 2008:
http://www.gata.org/node/11012
Of course gold reserves also diversify a country's foreign-exchange position generally. Any country that, like China, has placed a wildly disproportionate share of its foreign earnings in U.S. dollars has an urgent interest in using gold to hedge against devaluation of the dollar, which would expropriate China's earnings.
But while gold reserves support government currencies, it seems unlikely that China's government or any government would ever want to impose on its currency a fixed level of gold convertibility. For fixed currency convertibility into gold and free gold markets are powerful restraints on government power, which is why governments hate gold so much -- unless, of course, when they can use gold as a currency hedge or a weapon against their adversaries.
So how much gold does China really have? All that can be said for sure is: More than you and I do.
Sorry not to be more helpful. But gold is the secret knowledge of the financial universe, and if that secret ever got out too much -- if great numbers of ordinary people came to know it -- power in the world would be dramatically democratized.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
CPowell@GATA.org
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