Thursday, May 10, 2012

China Quietly Builds Its Gold Reserves

"... as Bloomberg reports, 'Mainland China's gold imports from Hong Kong surged more than sixfold in the first quarter, to 156 metric tons, adding to signs that the country may displace India as the world's largest consumer of the precious metal on an annual basis.' And the punchline: 'The purchases through Hong Kong may signal that the mainland is accumulating reserves, London-based brokerage Sharps Pixley Ltd. said in February.' Yep ladies and gents: the PBOC is very grateful that it can add hundreds of tons of gold to its reserve holdings in a stealthy operation which it will announce only after its conclusion, at which point, like true lemmings, retail will send gold soaring. But in the meantime, dear hedge funds worried about your margin calls and 1-month performance reports, please proceed calmly along with the lemming herd, and keep pushing gold lower and cheaper for our new Chinese overlords, and for everyone else who, without P&L timing constraints, takes delight in such brief arbitrage opportunities. Shipments in March rose 59 percent from February, data showed. The geopolitical implications are obvious: the prospect of China becoming the largest bullion user reflects the country's economic ascendance." (Tyler Durden at ZeroHedge)  Consuming gold is one thing, but accumulating gold reserves is quite another.  China is ever more secretive about its bullion holdings as time goes on.  The nation last made its reserves known more than two years ago, stating them at 1,054 tons at that time.  Two other items you may have missed along the way: China has strongly advocated a new international reserve currency (other than the tired old USD), and is increasingly insisting (successfully) on pricing deals directly in Yuan, bypassing the greenback.  If you were an emerging economy would you rather be paid in gold-backed Yuan or hot-air-backed U.S. dollars?  But of course, according to Warren Bufffett's second-in-command Charlie Munger, that would be "uncivilized", wouldn't it?  Make no mistake, folks, China is the biggest threat to our North American way of life.