{"id":66664,"date":"2015-01-16T12:39:21","date_gmt":"2015-01-16T17:39:21","guid":{"rendered":"http:\/\/countingpips.com\/?p=66664"},"modified":"2015-01-16T16:48:50","modified_gmt":"2015-01-16T21:48:50","slug":"chinas-global-gold-supply-game-of-stones","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/01\/chinas-global-gold-supply-game-of-stones\/","title":{"rendered":"China\u2019s Global Gold Supply \u201cGame of Stones\u201d"},"content":{"rendered":"
January 16, 2015<\/div>
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China has a 4-way global gold supply\u00a0domination<\/span>\u00a0strategy. And it\u2019s starting to corner the market.<\/p>\n

First, China buys physical gold in world markets, fabricates it where necessary into \u201cgood delivery\u201d bars \u2013 in Switzerland or the Middle East \u2013 then ships the bullion, transparently through Hong Kong or Shanghai (or quietly through Beijing and other ports of entry).<\/p>\n

Second, it keeps virtually all domestically mined gold \u201cin house.\u201d<\/p>\n

Third, China partners with or buys high grade, in-situ gold (and silver) projects around the globe. One of the most well-known recent actions has involved negotiations to partner with Barrick Gold on its massive cost-overrun-plagued Pascua Lama project, which straddles the Chilean-Argentine border.<\/p>\n

Most recently, China\u2019s largest gold producer, Zinjin Mining Group, made a strategic investment in Pretium Resources\u2019 high-grade Brucejack gold Project in northwestern British Columbia to the tune of $80 million. This latter investment will facilitate eventual construction of a 2,700 tonne-per-day underground mine.<\/p>\n

Fourth, and virtually impossible to quantify with a reasonable level of accuracy, are China\u2019s efforts to purchase \u201coff the books\u201d gold production from what are known as\u00a0informa<\/em>\u00a0or\u00a0artisanal<\/em>\u00a0gold miners in Africa and South America. This gold, which will never show up on an import manifest, nevertheless adds one more acquisition stream to the literal river of bullion flowing directly into the coffers of China\u2019s golden hoard.<\/a><\/p>

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U.S. intelligence advisor Jim Rickards, author of\u00a0The Death of Money<\/em>, recounts an episode told to him by a friend who is a senior officer of a high-security transporter of physical metals who had brought gold into China at the head of an armored column, guarded by heavily-armed troops.<\/p>\n

One of these days, at a time of its choosing, China may reveal just how much gold it does hold, alongside a possible decision to enable a newly gold-backed currency, the Yuan, to make its debut on the world\u2019s financial stage. Such an event would have profound implications for the primacy of the U.S. dollar, as well as America\u2019s ability to continue running printing press deficits, long financed by Chinese purchases of U.S. debt instruments, to the tune of several trillion dollars.<\/p>\n

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China\u2019s Undisclosed Gold Reserves:\u00a0<\/strong><\/p>\n

\u201cA dagger pointed at the heart of the dollar\u201d<\/em><\/strong><\/p>\n

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When this event takes place, it will become evident to the world\u2019s financial players that, as Rickards so poignantly remarks, China\u2019s true gold<\/a> reserves will have become \u201ca dagger pointed at the heart of the dollar.\u201d<\/p>\n

Most Westerners fail to appreciate the methodology by which China has traditionally pursued \u2013 and often successfully achieved \u2013 its geopolitical ends.<\/p>\n\n\n\n\n\n
<\/td>\n<\/td>\n<\/td>\n<\/tr>\n
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China is \u201csurrounding\u201d the global gold supply, analogized by this \u201cseki\u201d from the game known as \u201cGo.\u201d<\/em><\/td>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

China\u2019s strategies are oriented from the perspective of many years or even decades, unlike Western governments, who often judge success or failure based upon quarterly or annual progress reports. They are not likely to be concerned if the Pascua Lama project is not in production 10 years from now. They know that the gold \u2013 and silver is in the ground, so it\u2019s just a question of when \u2013 not if \u2013 they can acquire a substantial amount, adding it to their continually-growing stash.<\/p>\n

Some Westerners are familiar with a Japanese board game of strategy called \u201cGo.\u201d Few know that this game actually originated in China more than 2,500 years ago. Though the two player game has fairly simple rules, the number of possible games is several times that of chess. The objective is to outmaneuver the opponent, surrounding the largest area of the board with one\u2019s own stones.<\/p>\n

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China Is \u201cSurrounding\u201d the Global Gold Supply<\/strong><\/p>\n

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In the figure above, a situation known as \u201cseki\u201d or \u201cmutual life\u201d has taken place. The player with the black stones \u2013 labeled here as the Chinese currency, the Yuan, has positioned in such a way that if its opponent moves first \u2013 in this case, the U.S. dollar, he will be captured.<\/p>\n

This\u00a0Go<\/em>\u00a0board move offers an excellent analogy for the U.S. dollar competition with the Chinese Yuan. In order to be \u201cdethroned,\u201d the dollar does not have to be eliminated from global currency completion. It may not be necessary for China \u2013 using chess terminology \u2013 to fully checkmate the dollar. Instead, simply relegating it to \u201cfirst among equals\u201d might be enough to effectively cripple its historic full-spectrum functionality, because at that point, the Federal Reserve would no longer have the ability to issue unlimited, un-backed, U.S. dollar-denominated debt instruments.<\/p>\n

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A Game of Stones and Silk<\/strong><\/p>\n

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\u201cSurrounding\u201d global gold production is just one aspect of China\u2019s grand strategy for achieving political and economic dominance in Central Asia and beyond. The revitalization of modern-day trade routes, throughout direct spheres of influence, integrated with connections into Europe \u2013 once known as The Silk Road \u2013 is well underway.<\/p>\n

Think of this term as a plural. These \u201croads\u201d will see Chinese companies investing along their paths in dozens of countries, a significance that is almost impossible to overestimate. Pepe Escobar, the roving correspondent for\u00a0Asia Times<\/em>\/Hong Kong, describes it this way:<\/p>\n

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The Yiwu-Madrid route across Eurasia represents the beginning of a set of game-changing developments. It will be an efficient logistics channel of incredible length. It will represent geopolitics with a human touch, knitting together small traders and huge markets across a vast landmass. It\u2019s already a graphic example of Eurasian integration on the go. And most of all, it\u2019s the first building block on China\u2019s \u2018New Silk Road,\u2019 conceivably the project of the new century and undoubtedly the greatest trade story in the world for the next decade.<\/em><\/p>\n

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Meanwhile, the systemic issues which drove gold to $1,900 and silver\u00a0to almost $50 in 2011 \u2013 deficit spending, leveraged derivatives expansion, and misallocation of money due to artificially low interest rates \u2013 continue to worsen. Divining the exact timing when all these things reach a crisis point is less important (provided you are not too late!) than making sure you have \u201claid in\u201d some financial protection to help keep you safe from the inevitable fallout\u2019s worst effects.<\/p>\n

The progression of China\u2019s Go<\/em>\u00a0game strategy \u2013 and rising affluence among Asian nations which enables them to buy increasing amounts of gold and silver<\/a> \u2013 are all positive factors supporting higher precious metals prices.<\/p>\n

When push finally comes to shove, David Galland of Casey Research seems to have nailed it when he said, \u201cThe dollar is headed toward the sacrificial altar, with a knife made of gold. Sooner or later, the central bankers will have to throw in the towel, and just let gold run.\u201d<\/p>\n

When that happens, the only question \u2013 other than trying to find some metal to buy \u2013 will be \u201cHow high is high?\u201d Having enough gold and silver within arms\u2019 reach\u00a0before then<\/span>\u00a0may be one of the best decisions you can make.<\/p>\n

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\u2014<\/p>\n

\"DavidDavid Smith <\/em>is Senior Analyst for <\/em>TheMorganReport.com<\/em><\/a> and is a regular contributor to <\/em>MoneyMetals.com<\/em><\/a>. For the last 15 years, he has investigated precious metals mines and exploration sites all over Argentina, Chile, Mexico, China, Canada, and the U.S. and shared his findings and investment wisdom with readers, radio listeners, and audiences at North American investment conferences.<\/em><\/p>\n

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China has a 4-way global gold supply\u00a0domination\u00a0strategy. And it\u2019s starting to corner the market. First, China buys physical gold in world markets, fabricates it where necessary into \u201cgood delivery\u201d bars \u2013 in Switzerland or the Middle East \u2013 then ships the bullion, transparently through Hong Kong or Shanghai (or quietly through Beijing and other ports […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-66664","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/66664","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=66664"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/66664\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=66664"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=66664"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=66664"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}