Koos Jansen
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Koos Jansen
Posted on 7 Mar 2014 by

China’s Road To Secret Gold Accumulation

In august 2013 I published a translation from an article written by a Chinese gold commentator called Zhang Jie. In the article Zhang described how not only the US but also other western countries have been involved in manipulating the price of gold to control the international monetary system for decades. I suggest to read the full article – here are a few snippets:

…Gold leasing is an important innovation in the gold settlement system. Through continuous gold leasing the gold in the market can be circulated and produce derivatives, creating more and more paper gold. This is very significant for the United States. Gold leasing is a major tool for the Federal Reserve and other central banks in the West to secretly control and regulate the gold market, creating gold credit derivatives and global credit conflict.

…The purpose of gold leasing is not just to receive a rent, but it also provides the ability to short-sell gold, which allows central banks to interfere in the currency market.

…If the Fed’s large gold reserves are used in gold leasing, there will be a serious problem. Germany therefore will threaten the Fed’s dominant position by demanding their gold back; the Fed subsequently needs to withdraw the leased gold and thus could destabilize the market. This is a new credit game of international capital.

…The Fed probably has agendas aimed at preventing Germany to inspect its gold or to ship it back to Germany.

I recently came across another article by Zhang that I also found worth sharing. First you can read the article, then I will provide some comment. This article is dated 16-04-2013, but it must be a repost as the data in the text shows it had to be written Jan/Feb 2013. Everything in between [brackets] is written by Koos Jansen.

Translated By Soh Tiong Hum!

Zhang Jie: China’s Road To Secret Accumulation

2013-04-16  Author: Zhang Jie

Zhang Jie


Core hint: China may gradually acquire gold on the international gold market through non-central bank financial entities, the newly acquired gold shipped back to China to be converted into central bank gold reserves. Credit in various forms including gold reserves will support China’s Renminbi and its internationalization.

Unless military confrontation or economic sanctions take place between China and US, there should be little question about the safety of China’s gold reserves stored at the US Federal Reserve. The question of China’s gold is not its safety but rather to possess the ability to use it for market intervention, and to boost creditworthiness of the Renminbi.

 

Difficult To Bring Back Gold

Risk of losing China’s gold stored at the US Federal Reserve can be temporarily set aside because in comparison to China’s foreign exchange reserves, the risk to China’s foreign exchange reserves is larger than the risk of gold deposited at the Federal Reserve! Regardless of buying sovereign debt or depositing in the US financial system, there is risk of a mass default. A mass failure to fulfill obligation by Western countries should no longer be called a default but a crisis. Cash deposited inside the financial system has even more danger. Western banks can go bankrupt, even large corporations like Lehman. Therefore risk has to be looked at in relative terms, not just absolute ones. The gold question should be looked at from the angle of the global currency system. Whether gold should be stored in China has to be considered for the level of creditworthiness.

The PBOC operates on a ‘pool’ concept, which also needs gold. Considering the global credit game, it is highly necessary for China to develop her own gold reserves and must do so with a better strategy than Germany.

The US has already demonized China’s rise so if China were to ask to bring back her gold, it would surely lead to a tremendous confrontation. When China first shipped her gold to the US, it was meant for reform, opening up and removing US economic sanctions. To ask for the gold back now would be a political signal. China can wait to look at Germany’s outcome before considering to repatriate it’s own gold from the Federal Reserve. China does not yet have to pull her chestnuts out of the fire. If China were to make a fuzz about their gold, Western countries will point their fingers at China, but not to Germany because of their close relation.

pboc

Accumulating Gold To Convert FX Reserves

China can use its increasing foreign exchange reserves to buy gold continuously. When the US and European central banks are continuously leasing and short selling gold, China can buy this gold and take possession, adding them to domestic reserves.


It’s best to let domestic financial entities acquire gold rather than the PBOC, to create multiple positions in the domestic gold futures market, to create the impression of forced buying by private hands so as to shut off international opinion. 
Purchased gold is withdrawn from the futures market, stored with reserves held in core financial entities then moved to the PBOC for domestic safekeeping. Just like Western central banks use gold leasing and short sell gold, China also needs to employ deception to secretly accumulate gold in a timely manner.

It is a good time for China to use surplus foreign exchange reserves to purchase gold when central banks around the world are secretly leasing gold and short selling gold to prop up currency printing. During the 10 years after gold leasing was born [early eighties] the world sold gold short, while during the gold bull market short sellers in the gold leasing business covered their shorts. International gold price fluctuations after 2008 was when gold short selling commenced again, especially at the time when gold fell from USD 1900 and US and Western countries were running endless quantitative easing. With the gold price is running contrary to quantitative easing, it is highly probable that Western central banks or major institutions were short selling gold. With China acquiring gold till a currency crisis erupts and short sellers need to cover their position, international gold price will certainly rally, possibly resembling eighties like fluctuations. It is therefore a tremendous opportunity for China to buy gold now to hedge against risk from a global currency crisis.

China in possession of large amounts of gold, China has secretly accumulated more gold, is a way to fight developed countries that are depreciating their currencies with quantitative easing; China’s gold accumulation gives them caution about short selling gold and currency printing. This is the most effective means to protect China’s foreign exchange reserve wealth from the threat of the Western financial hegemony.

Great Wall of China

China’s GDP and foreign exchange reserves already exceed Germany’s. Therefore China must possess effective control over gold volume not less than Germany’s gold reserves. At the current price of USD 1700 per ounce, one ton of gold is worth USD 50 million. When gold rises to USD 2500 per ounce, one ton of gold is worth USD 75 million. If China brings in 10,000 tons, foreign reserve spending is merely USD 800 billion but this volume is roughly 30% of gold in global circulation [he means global official reserves!] and is going to be pole position in global markets. Spending such a small expense to swallow such a massive gold position is only possible when the world is short selling. Otherwise price will go sky-high when you buy 10,000 tons! Buying US government debt with China’s current foreign exchange reserves at USD 3.3 trillion yields less than the 0.25% Fed Funds Rate. With this very low yield, buying gold is a good deal.

More than 80% of the PBOC’s currency in circulation is foreign exchange. Depreciation by foreign currencies such as US Dollar forces Renminbi to lose its purchasing power and increases turbulence. This was the reason why China imported inflation years ago. If China buys gold in large amount now, she can choose to support the value of Renminbi with gold in future. Purchased gold will support Renminbi creditworthiness. At the moment, Renminbi’s creditworthiness is supported by the central bank’s foreign exchange reserves but the creditworthiness of foreign exchange in its possession is a function of the issuing country, not China. Supporting China’s creditworthiness is not just about buying gold but also buying China’s sovereign debt, government debt, core industry debt, Chinese real estate, Chinese rare earth, tungsten, antimony and so on. However, besides foreign exchange gold and precious metals are the most appropriate for use overseas to support Renminbi’s export and international policy.

The foreign exchange standard has more problems than a gold standard. The Renminbi wants to be internationalized and China wants to be wealthy and strong. If the Renminbi issuance remains linked to the US Dollar, then the Renminbi will just resemble many so-called international currencies, becoming merely a proxy of the US Dollar, unable to match the creditworthiness of the US Dollar. Internationalization of a pegged-Renminbi is a make-believe internationalization, just like the Hong Kong Dollar, freely changeable but confined to linked rates.

______________________________________________________________________________________________________

Though he’s not a politician Zhang provides us with interesting insights about China’s monetary policy.

My thoughts:

Zhang writes; “there should be little question about the safety of China’s gold reserves stored at the US Federal Reserve” (I asked my interpreter if this is really what he wrote, he really did..), while he clearly states these reserves held by the Fed are leased out and are thus NOT save. A few sentences later he writes; “Risk of losing China’s gold stored at the US Federal Reserve…”. In fact the rest of the article is about the importance of the PBOC holding official gold reserves in the mainland to strengthen the Renminbi. I don’t understand why he wrote the gold is safe in the US in the beginning.

“When China first shipped her gold to the US, it was meant for reform, opening up and removing US economic sanctions.” This underlines the dirty game the US is playing. It demands countries to store a part of their official gold reserves at the New York Federal Reserve so ultimately only the US controls the global currency market. According to this article, written in January 2013 by Liu Zhongbo from Agricultural Bank of China, at least 600 tons of Chinese official reserves are stored at the Fed.

“It’s best to let domestic financial entities acquire gold rather than the PBOC, to create multiple positions in the domestic gold futures market, to create the impression of forced buying by private hands so as to shut off international opinion. Purchased gold is withdrawn from the futures market, stored with reserves held in core financial entities then moved to the PBOC for domestic safekeeping.” I fully understand the PBOC is buying gold through proxies, however all my sources in the mainland ensure me the PBOC would never (indirectly) buy at the Shanghai Gold Exchange, which is the only domestic futures/deferred market where significant amounts of gold are being withdrawn from the vaults. On the Shanghai Futures Exchange withdrawals are neglectable. Maybe Zhang’s approach is wrong here.

The PBOC wants to diversify it’s FX reserves (USD) in gold, all gold on the SGE is quoted in RMB. It would make more sense for the PBOC to buy gold abroad in exchange for dollars, this would also circumvent SGE premiums. On the Chinese Foreign Exchange Reserves of the People’s Republic of China wikipedia page (not on the English page) it states:

中国大陆外汇储备作为国家资产,由中国国家外汇管理局及中国人民银行管理,实际业务操作由中国银行进行。

The FX reserves of the Chinese mainland are State-owned assets and managed by SAFE and the PBOC. The real operations are done by the Bank of China.

The Bank Of China is a commercial state-owned bank and LBMA member, just like ICBC. It’s more likely the PBOC would make purchases through these channels.

Koos Jansen
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  • Zhanglan

    The problem of holding China’s Gold Reserves in the USA is not one of physical security, but of political risk.

    As we saw last week in Ukraine – if the USA decides to de-recognise one apparently legitimate Head of State whom it happens not to like, and to summarily recongise another candidate elected unconstitutionally by a baying mob funded by the National Endowment for Democracy and goaded in person by someone like Nuland or Ambassador Huntsman (see this: https://www.youtube.com/watch?v=Lv9vTT-orD0 ) – then China will suddenly find that the Gold it thought belonged to the PBOC now belongs to someone else appointed by and controlled by the Feds

    I bet the Dalai Lama is licking his ethereal lips at the thought of how many pairs of Gucci loafers and sharp suits he will be able to buy by cashing in after this: http://www.reuters.com/article/2014/02/21/us-usa-china-tibet-idUSBREA1K01P20140221

    In passing, is anyone else as disgusted as I am that the British media is unwilling to refer to the murderous knife attack in Kunming as an act of terrorism, and instead offers the Uighurs moral equivalence to the Chinese authorities? If you invade Iraq, Libya and Afghanistan, and then one of your soldiers is butchered outside his barracks, that is Terrorism. If 150 innocent civilians are knifed at a railway station after you haven’t invaded a Muslim nation for decades, that’s apparently “civil unrest”. Religious oppression? – I am old enough to remember ‘the Troubles’ and the British governments coverup of the Bloody Sunday massacre in Northern Ireland, and that was and still is rightly considered as a terrorist uprising

    The hypocrisy is staggering (and the Gold – if it exists as anything other than a book entry – probably isn’t there anyhow)

    • john

      The funny thing to me is that, given the short selling, etc. that the fed engages in, China may in fact have actually purchased it’s own gold back. There is a much higher likelihood of this than of the gold still sitting safely in the fed’s vaults.

  • Wil Martindale

    While deception is strategic to be sure, this man Zhang speaks the truth.

  • Michael Lewinski

    “Risk of losing China’s gold stored at the US Federal Reserve can be temporarily set aside….” could this not mean the loss of FED gold is taken as a given cost factored in China’s strategic efforts to transform the international economic framework?

  • AK

    “….to swallow such a massive gold position is only possible when the world is short selling. Otherwise price will go sky-high when you buy 10,000 tons!”
    It makes you wonder why the West continues to suppress the Gold price to let China quietly accumulate all this Gold at lower prices. Could this be collaboration where the West allows this to happen in exchange for China to let the paper debt Ponzi scheme to continue for as long as possible?

  • 24 carat

    Watch if the US$-index declines and the $-interest rates rise. Meaning that China & Russia are dumping the $-reserves and are backing each other with sufficiant goldreserves physically in possesion.
    That’s why the US/EU have to dismantle Russia (Cfr. Ukraïne in NATO)
    The West is in an economic/financial catch-22. Worldwar III as the classic solution and the East to blame for it.

    • Zhanglan

      damned right it’s the East to blame! Ukraine is practically adjacent to the USA, and half of their people speak American.

      and as for the Diaoyu Islands? – well, you can see them from The Golden Gate Bridge on a fine day, they’re that close to San Francisco

      To be frank, I’ve grown tired of these Commies diluting our precious bodily fluids metals – let’s nuke ‘em and be done with it!

      • http://google.com/+TiongHumSoh Tiong Hum Soh

        I hope you were being sarcastic. I easily get confused.

        • Zhanglan

          Dr Strangelove was very much a Black Comedy, and I can reassure you that I was indeed joking

          • http://google.com/+TiongHumSoh Tiong Hum Soh

            Thank you. This is so reassuring. You cannot imagine the sort of stuff people write to trash China whenever and every time.

          • Zhanglan

            try me; I have a very good imagination. does it include the word “shadow”?

  • Joe

    It demands countries to store a part of their official gold reserves at
    the New York Federal Reserve so ultimately only the US controls the
    global currency market. This is the key. FDR confiscated US citizens gold and banned us from owning it for decades. The Fed does the same thing with all the gd derivatives. It’s all about perception who controls the gold. Gold is real money and nothing else. Welcome to the matrix

  • Sufiy

    Gold Catalyst: Economist John Williams: Financial Collapse if Russia Sells U.S. Dollar Holdings

    With Ukraine in the headlines Greg Hunter discusses with John Williams the complications for the US Dollar Reserve Currency Status of the ongoing Financial War. China has sold the record amount of US Treasuries in December and buying the record amount of Gold. Today US Dollar has crashed below 80.00 again and closed at 79.66. Russia has already warned US that any sanctions will come back to those who will implement it. With China siding with Russia we can expect the acceleration of De-Dollarisation now.

    http://sufiy.blogspot.co.uk/2014/03/gold-catalyst-economist-john-williams.html#

  • jude jin

    Bank of china holds a lot of gold on its balance sheet.

    • Freda Peeple

      http://pic.bankofchina.com/bocappd/report/201310/P020131030601393650896.pdf page 14

      Bank of China holds RMB 174.1 billion in Precious Metals – 1.26% of its total assets of RMB 13.6 trillion and – if its all gold – about 650 metric tons

      It is not immediately possible to compare this figure to other banks such as e.g. JP Morgan because

      a. Unlike those made-up Chinese numbers, American Banks are subject to strict and very comprehensive disclosure requirements under e.g. Sarbanes Oxley and IFRS, and consequently don’t disclose their Precious Metal or Gold holdings in their infinitely more transparent Financial Statements http://files.shareholder.com/downloads/ONE/3008173673x0x652147/a734543b-03fa-468d-89b0-fa5a9b1d9e5f/JPMC_2012_AR.pdf

      b. The Bank of China figure is probably all lies, or paper gold or far less than it really is or far less than it really is because they are basically all Commies and Shadow Banking and property bubbles and PM2.5 and I bet they shot down that Malaysian Airlines plane themselves just to provide a false flag pretext for invading Ukraine

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  • Dang

    Chinas gold buying has conspiracy written all over it. America an the world has let china buy precious metals way to cheap. There buying huge amounts of physical there saying, like 4 years of world production a year. And the gold price is actually falling hard from its highs. Which tills me that the governments giving it to them for a reason. Could it be they want all the gold out of the USA. And another funny one china bought the biggest gold banking vault in the USA for storage of what? Its beginning to see the future more clearly here now. Almost all gold and silver sources in warehouses are running on fumes an a comex default is on its way. I predict by the end of march there will be a massive stock market crash down to 5000 area an this time it will take the comex with it into default. An like always the gov will come in an lock pirces and if pms prices rise on the street they will outlaw ownership again. This could of been there plan all along to deplete the reserves so the end game is comex default an nationalaztion. All there worrys gone now. Was there ever gold in fort knox. All the paper toilet pm paper is gone now, An who made all the money on the puts with the gold an silver price flushes. An best of all gold an silver prices are in check now ready for the NWO money to come to the new world

    • illiterates-R-Us

      ….. and that concludes the case for the “Gold is fairly valued and not manipulated at all” argument

  • http://google.com/+TiongHumSoh Tiong Hum Soh

    There is an article today on Zerohedge about Ukraine’s gold. I want to share this picture in the post. As we can see here, China’s gold is minuscule in percentage terms to its foreign reserves. http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2014/03/Ukraine%20goldjpg.jpg

    Author Zhangjie explained and I paraphrase: China’s non-gold reserves in bonds and deposits placed in the American financial system could easily be defaulted. This default is a greater danger that losing 600 hundreds tons of gold. (From para. 3). On the other hand, buying 10,000 tons of gold with $800billion will secure the RMB’s independence and creditworthiness as well as control 30% of global gold circulation. This he sees as the more urgent task. (3rd para. from the bottom).

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