China & Gold: Challenging the Dollar on Land & Sea

China & Gold: Challenging the Dollar on Land & Sea

Dear Reader

For some time we have been watching China in regards to Gold and Silver, in 2009 China's government began to tell its citizens to buy Gold and silver bars and coins, this was a huge turn around as 50 years ago the sale of precious metals was highly restricted, the average individual was not allowed to own gold or silver. Slightly more recently, China's central television channel has been running news programs (Watch short video) informing the public as to how easy it is to buy precious metals as an investment.
 
A few years ago it was hard to source Chinese coins for the occasional western investor. Now, not only are the Chinese Pandas becoming more common in the West, but last year The Royal Mint announced a new range of coins, (The Lunar Series) which have the same legal tender status as the famous Britannia: "The Royal Mint’s fusion of British and Chinese tradition began with a design by British-Chinese designer, Wuon-Gean Ho, celebrating the Year of the Horse in 2014. For 2015, the collection continues with coins for the Year of the Sheep. Each year, a new zodiac animal will be celebrated, with the animals’ traits attributed to those born in a given Lunar year."
 
The Royal Mint continues: "At Chinese New Year, gifts and tokens are exchanged, particularly the gift of money in red envelopes, symbolising good wishes for the recipient’s health, wealth and prosperity. These Lunar coins from The Royal Mint embrace this popular and globally observed tradition, lending a unique British angle to an ancient tradition." There is no doubt these are stunning and popular investment coins and Bleyer currently have many in stock. 
 
But the Chinese theme struck me straight away, the first time I saw these beautiful coins up close. This is because of the greater information such a partnership portrays. China know Gold and Silver are key. This is why as a nation they have completely reversed their international selling to buying ratios in Physical Gold and Silver over the last three years.  
 
In April 2013 Gordan G Chang, Forbes Contributor wrote: "Demand for “9999” bullion—99.99% pure gold—was five times normal according to Haywood Cheung Tak-hay, president of the Chinese Gold & Silver Exchange Society. His organization effectively ran out of holdings as members tried to meet supply shortfalls.  In terms of volume, I haven’t seen this gold rush for over 20 years,” Cheung told the Financial Times.  “Older members who have been in the business for 50 years haven’t seen such a thing.”
 
But has the purchasing of Physical Gold and Silver continued since then? "According to the latest World Gold Council data, in 2014 the world's central banks went on a golden shopping binge to take advantage of the ongoing dumping in paper ETF gold, resulting in bank net purchases amounted to 477 tonnes over the past year, a 17% above 2013’s 409 tonnes. This was the second highest year of central bank net purchases for 50 years, coming second only to the 544 tonnes added to global gold reserves in 2012." And which country is winning in the golden shopping binge? "After its gold-buying splurge, Russia currently has - according to official data - more gold, 1,208.2 tonnes in its, and certainly not the NY Fed's vault - than China. The problem, is that China's gold holdings were last updated officially in early 2009." (Tyler Durden, ZeroHedge)
 
It is internationally assumed that China is winning and this secrecy could change very soon. The Wall Street Journal made a stunning announcement today. Bank Of China will become the first Asian firm in history to join the group of Western institutions that help set the price of gold in the London market. This is historic and I'm surprised (or maybe not) that it isn't on every front page.  Since 1919, the London Gold Fix has been the world's daily benchmark, with the Silver Fix originating as far back as 1897 to 2014. It is poignant that the Wall Street Journal would run the announcement that the Bank of China's involvement is changing the make-up of this tradition, as it was The WSJ themselves who acted as an informal Gold Fix from 1907 to the establishment of the LBMA's daily Gold fix in 1919. 
 
But now that is about to change: "A Chinese bank will for the first time join the group of lenders that sets global gold prices, marking another step in China’s push for a bigger role in international financial markets. Bank of China Ltd., one of China’s big-four state-owned lenders, will participate in the twice-daily electronic auctions that set the LBMA Gold Price benchmark, the London Bullion Market Association said Tuesday."  So not only is China now the world's largest producer and consumer of Physical Gold, but the: “Bank of China’s direct participation in the gold auction would reinforce the connection between the Chinese domestic market and overseas markets.”  This is a striking advancement of the financial power shifting from the West to the East. For more on this please see my previous article.  It is striking because of two points.
 
Firstly China, as we have seen, has been attempting to amass Physical Gold and Silver in preparation for the increasingly likely creation of a Gold and/or Silver backed world currency.  That has been clear for at least the last six years, since their government announcement to their populace. In 2009, China spent large sums of money advertising to its people to buy Physical Gold and Silver, having relaxed its government rules for precious metal purchasing for its citizens. "Given that the Chinese people (like most of Asia) already had a greater appetite for gold and silver than people in most Western nations, the explicit urging by the government itself for people to load up on bullion clearly implies the expectation of a strong future for precious metals." (Jeff Nielson, 2009)
 
But secondly, the Chinese government has come out into the open in their desire to challenge the Dollar, Euro and Yen as potential world reserve currencies: "Last month, The Wall Street Journal reported that Beijing is considering relaxing controls on Chinese businesses and individuals to buy foreign stocks, bonds and real estate directly. The Asian powerhouse also wants its currency, the yuan, to be used more widely around the world. It has been pushing the International Monetary Fund to declare the yuan as an official reserve currency, which would put it on a par with global powerhouse currencies such as the dollar, euro and yen. In metals markets, Hong Kong Exchanges and Clearing Limited, one of the largest global exchanges, launched late last year yuan-denominated futures contracts for some industrial metals such as aluminium, zinc, and copper. Its industrial metals unit, the London Metal Exchange, signed agreements with China Merchants Group Ltd. and China Construction Bank Corp. to explore ways of expanding in Asia, and of spreading the use of the yuan." (Ese Erheriene, Wall Street Journal, 16 June 2015)
 
And this may be why Chinese secrecy over its Physical State Gold holdings may change, because China want to become a reserve currency holder, and that demands international transparency. "The link between gold and the SDR — the IMF’s composite currency unit, comprising the dollar, euro, yen and sterling — resides in China’s potential upgrading of its international statistical reporting as part of a deal under negotiation on becoming the first emerging-market economy to join the elite group of reserve currencies." (David Marsh, Market Watch, April 2015)
 
Here in the West, we recently marked the commemoration of D-Day, the allied invasion of Normandy. When my Grandfather was alive, it was always an extremely poignant anniversary, for personal reasons. But by comparison, modern-days invasions - particularly those into Western democracies of which we enjoy - do not work by the same laws of conflict. Warfare has become Lawfare and invasions have become slow acts of stealth.  China is - economically at least - invading the West. Is the financial power is shifting from West to East?  Is China attacking the Dollar as the World Reserve Currency? Considering China now own 8 cents on the dollar in US Government Debt it would appear so.
 
Further evidence of this is the recent creation of the Asian Infrastructure Investment Bank. For a deeper look at this new world banking entity please read my previous article entitled "China and Alan Greenspan - Something Big is Coming." (April 2015)
 
Sometimes, stealth motives can be spotted by looking at actions that may seem, at first glance, unrelated. Last month, the news broke of China literally expanding its territory into the South China Sea by building man-made islands. It was my teenage son, who loves World Politics and Economics, who brought this to my attention. The footage was dramatic and audacious. He immediately understood the implications of such a move. China is advancing.  We suffer, I believe, particularly as Brits, with the belief that if something doesn't play by the rules then it can't possibly succeed. We sometimes build our world view on the genteel equity of a summer evening's cricket match between friendlies. "It's just not cricket". But China apparently isn't playing cricket.
 
"In one disputed area, the Spratly Islands, U.S. officials say China has created about 800 hectares (2,000 acres) of dry land since 2014 that could be used as airstrips. The U.S. argues that man-made constructions cannot be used to claim sovereignty and is closely watching for signs that China will seek to back up its claims by basing missile systems and fighter aircraft on the newly formed islands." (Daily Mail, 27 May 2015)

If this sounds as if China and the U.S. are jostling with each other, it is because they are. There is more at stake here than small islands. The controller of the World's Reserve Currency is THE superpower.  What would the world look like with a communist super-power? And will that new World Reserve Currency involve a return to the Gold and Silver standard? The fact that China is directly and openly involved in setting the age-old British tradition of the London Bullion Market Gold fix is a wake up call to Western citizens to look closely at whether this is the time to seriously move into holding Physical Gold and Silver in one's portfolio.  

I would say it would be interesting to compare the advice of percentage recommended holdings of a British or Western I.F.A. with a Chinese one. Typically, I have heard the figures of 5% - 10% banded about as the 'ideal' percentage of Physical Gold and Silver recommended in a balanced portfolio.  But in many ways, China's move into the fixing of Gold worldwide enables me to wake up from my slumber, if you will, and think - what percentage are China investing into Gold and Silver? That is a difficult figure to come by. Even if China is forced to declare its State holdings of Gold in order to move into the reserve currency group, that figure will not include the Gold and Silver holdings of its 1.357 billion citizens. The world's most populous country owns a lot of Physical Gold and Silver. 

To increase your own Gold and Silver holdings call one of the team now on 01768 618618. Just like the Chinese government, we encourage British citizens to look at the ease of buying even small bars and coins as part of your monthly savings plan. Alternatively, call and ask for our senior consultant Caroline Peers for detailed information on holding Physical Gold in your pension. We can arrange that for you or facilitate your own arrangements upon your instructions to your I.F.A. We also offer a wide range of storage, from off and onshore secure vaults to a convenient range of home safes with fire standards built in.

Bleyer hold in stock a wide variety of Bars and Coins in a range of sizes to meet all budgets, in addition to our Chinese Pandas and the Britannia Lunar Series. Call today for friendly, professional and no-obligation information on owning your own Bullion Gold and Silver. On calling please ask to learn more of significant VAT and Capital Gains Tax exemptions on certain Gold and Silver coins, plus TAX advantageous ways to purchase Silver through Bleyer. 

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