Follow China’s Lead in Gold

[Gold's long-term charts provide strong justification for accumulating bullion above $1600, although investors' patience appears likely to be strained by a prolonged slog sideways. These points were underscored by the latest analysis at Rick's Picks. Technical analysis aside, interesting new evidence has emerged that steady demand from China is likely to be increasingly a factor in keeping quotes buoyant.  The following explains why. It was posted by Cam Fitzgerald in the Rick's Picks forum, prompted by an astute observation at ZeroHedge that deserves the widest audience possibleRA]

I don’t think there is any doubt that China is buying Gold on behalf of its Central Bank. The accumulation has been going on for quite some time and though little is known about the exact quantities purchased (or those retained from domestic production) we do know they are taking it seriously.

From Zero Hedge this morning I came across what I thought was a fascinating insight into the Chinese Gold accumulation process now underway. ZeroHedge writes:

“China needs to add to its gold reserves to ensure national economic and financial safety, promote yuan globalization and as a hedge against foreign- reserve risks, Gao Wei, an official from the Department of International Economic Affairs of Ministry of Foreign Affairs, writes in a commentary in the China Securities Journal today.

•While gold prices are currently near record highs, China can build its reserves by buying low and selling high amid the short-term volatility, Gao writes in newspaper. China’s gold reserve is “too small”, Gao says”.

That was an eye opener for me. If indeed China is already the worlds second largest holder of Gold and it is pursuing a policy of buying on weakness while selling on strength as an end to accumulation then everyone needs to consider it is within their power to dictate prices to some extent. Make no mistake….they can move the market. If we knew exactly who their network of dealers were it would be simpler to prove that price management is actively being practiced on a wide scale.

The idea here fits very nicely with Rick’s analysis of a very long slow technical trend formation before a significant breakout event occurs. So while everyone else is huffing and puffing about Central bank gold manipulation in the West we should perhaps keep in mind that some price moderation is now taking place as an outcome of strategic buying and selling in Asia.

The folks over there are simply playing off existing market volatility in the same way swing traders might try to make a buck but rather than making that buck the goal is to build reserves steadily over time. Hell, they are admitting as much if we can rely on Gao Wei’s comments.

Obviously this idea is at odds with the belief that Chinese Central Bank ambitions revolve around the employment of a simplistic “buy and hold” strategy.

Instead I believe that Mr. Wei has tipped his hand and told us exactly how the acquisition process is now unfolding. The point here though is that if indeed the worlds second largest gold holder is acquiring reserves slowly through daily buy and sell routines then we should anticipate gold’s price to remain relatively flat for an extended period of time as the metal slowly shifts East and the buyer gets what he covets most.

Physical metal. The real deal. And lots of it.

10 comments on “Follow China’s Lead in Gold
  1. Hoser says:

    Good work Max. Question: How did you land yourself a World Class Hottie like Stacey? What’s your secret?

    Hoser

  2. Danny Cunnington says:

    This would explain why the Chinese never say anything about price suppression. It works in their favour. The physical flow is one way. Apparently China is hard at work recasting bars into one kilo bars with Chinese stamps and serial numbers but no one has seen these bars anywhere in Bullion reserves. This sounds like a gold standard in waiting, being constantly built up until they can’t get anymore physical.

    Consider that investment demand from China’s domestic market next year is 7,700 tonnes. China is the largest silver producer with around 13,000 tonnes annually so more than half of it’s entire production is swallowed up just by domestic investment. China is also one of the largest users of silver industrially so they may start to aggressively buy silver because even though they are the biggest producer they still don’t have enough for themselves.

  3. Re Stacy I think Max’s secret is to be long, not short.

  4. jarrollin says:

    Yes. The US wants gold lower to make the dollar look strong. China is happy to buy cheaper gold. I wonder whose strategy is better.

  5. Bruce says:

    Tears of The Moon gets my vote for the most in-context, factual and funny joke of the week.

  6. MEJ says:

    JPMorgan sells low, Asia buys. People here following Max and Stacy have been saying that for at least the past year. Now somebody in China is admitting what observers know. If I was Jamie Dimon I would be asking for a kickback from Beijing for doing them such a favor. . . . Hmmmm, maybe JPMorgan is not working for just the NY Fed?

  7. dave says:

    Rumormillnews had an article from Aug12 saying China was pouring kilo bars in prep for their gold backed yuan.
    SUPPOSEDLY from Jim Willie’s Hat Trick Letter.
    I’ve seen the SAME article reposted by a number of sketchy sites (Beforeitsnews, etc)
    I HAVE NOT seen any independent verification of this report.
    If ANYBODY else that actually gets Willie’s letter can verify he wrote this please respond.
    I’m beginning to think its a hoax story.

  8. Thanks Bruce, love your compliment long time.

  9. SandVelder says:

    LOL @ the heading: Follow China’s “Lead” in Gold.

    Do they “lead” the world in the accumulation of gold? Or do they have impurities in their gold such as “lead”?

    Just asking! :-)

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