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Permalink Reply by Maria De Wind on May 20, 2011 at 7:53pm

China Building a New Fort Knox

China Will Overtake the World as #1 Gold Holder

By Luke Burgess

If you think the recent, highly-publicized gold-buying mania is merely the result of a handful of panicking investors, urged along by a couple contrarian billionaire types... think again.

Today, it's no longer just private individuals buying up the yellow metal.

For the first time in decades, gold has become a nearly universal investment strategy... something that literally any class of investor must own to be considered well-hedged.

It's so important, in fact, that the world's biggest and fastest growing national economies are in the midst of an historic push to build up their stores of the precious metal.

Most of it will end up in places like this:

Not since the late 1980s has investment demand for this metal been as high as it is today.

In fact it has been 22 years since central bank and investment buying of the yellow metal outstripped industrial and ornamental demand.

Today, the biggest buyers of gold aren't private citizens or hedge-funds. Instead, nations like China, India, and Russia have moved forward to grab up every loose ounce of the metal...

• In 2010, Russia's central bank bought up an astounding 2/3 of the country's entire national production.
• That same year, India purchased close to 750 tons, breaking the record of the previous year by almost 40%.
• China — the biggest gold market of them all — has stated an intention to raise their national reserves by 849%, or 10,000 tons, worth an estimated half a trillion U.S. dollars, by the end of the decade.
• In the first two months of 2011, China boosted their national holdings by 200 tons.

If this trend continues, it will almost certainly reshuffle the world order as far as government-owned gold holdings go.

Currently, the United States occupies the number one spot with 8,133 tons of gold. However, if China's acquisition plans come to fruition, they will supplant the U.S. for the first time in history.

Similarly, India and Russia are working overtime to do the same to Germany and France — Europe's number one and two biggest gold owners.

While these facts may be shocking to people used to living in a world where Fort Knox was the single biggest concentration of gold in existence, the reasoning behind these developments is as clear as day...

Dollar's Demise: When Gold Trumps Green

In a highly-publicized media event last week, the United States hit its federally mandated debt limit of $14.3 trillion.

Although this milestone wasn't a surprise (and in itself didn't symbolize any actual additional dilution of the dollar's value), it was the next and perhaps the biggest in a series of confidence-destroying events for the world's embattled reserve currency.

Far-sighted private citizens have been hedging against this for years, and, as we've seen from the price growth of the last 18-24 months, have been driving up the prices.

But it's the entry of cash-rich nations such as the big three I've been mentioning that promises to put gold into a period of change unseen before at any point in history.

The scary fact is these nations — as powerful as they're becoming, thanks to exploding industrial and natural resource wealth — are in the exact same boat as private citizens such as yourself.

Despite their growing influence and power, they are still subject to a global economic system which evaluates performance and transacts its business using the greenback... which makestheir reason to hedge the same as your reason to hedge.

And the result of this unprecedented bull market is exactly what you see today.

Unfortunately, this trend isn't something that's going to screech to a halt based on one report from Jim Cramer or a well-placed article in The New York Times...

What we're seeing now is no longer manic buying or group think.

Today's gold market is the result of a calculated, determined, and ongoing campaign by the world's fastest growing economies to ensure their survival in the years and decades to come.

A couple years ago, I would have advocated buying gold to balance out a portfolio.

Today — with the gold rush on its way to becoming a permanent financial strategy for banks and cash-rich nations alike — I'm insisting on it as a tool of survival.

Good Investing,

China Overtakes India as Top Gold Buyer

 

China Overtakes India as Top Gold Buyer

Posted by Adam Sharp - Friday, May 20th, 2011

 

Amidst 5% inflation and mounting concerns about the dollar, China is increasingly turning to gold. Both the central bank, and its citizens.

It's not just bars and coins either. Gold jewelry sales are surging as wages rise.

More from Bloomberg:

Gold imports by China may increase after investment demand more than doubled in the first quarter, with the country overtaking India to become the largest market for gold coins and bars, the World Gold Council said.

China produced 340 metric tons of gold last year and consumption was about 700 tons, leaving a gap of 350 tons to 360 tons, Albert Cheng, Far East managing director at the council, said yesterday.

...China’s investment demand jumped 123 percent to 90.9 tons in the first three months, compared with an 8 percent rise to 85.6 tons for India, the council said.

China's insatiable appetite for gold is a new phenomenon, as shown by this chart from ZH:

On a per-person basis, China still has very little gold. There is a LOT of upside in this growing demand picture.

There was a good quote from the Bloomberg piece, when they talked with a wealth manager in Shanghai about the rising demand:

"Gold has taken on a new role in China amid concern about inflation," Song Qing, a director at Lion Fund Management Co., said by phone from Shanghai. "It is increasingly being seen as an asset allocation choice. Just imagine the total wealth in China and even a small percentage of that choosing to buy gold. This demand is going to be enormous."

 

China May Buy $1 TRILLION of Gold: Bloomberg

 

Posted by Adam Sharp - Friday, April 29th, 2011

 

In an otherwise quiet article about central banks today, Bloomberg quoted an analyst who says China may use up to a third of their $3 trillion in foreign reserves to purchase gold.

China has been moving away from the dollar, and into alternative stores of wealth for years now.

But $1 trillion into gold? If it happens, such a large move would further threaten the dollar's status as reserve currency. It would also provide further buying pressure in gold for years to come (as the dollar crumples into a pitiful heap on the floor).

Bloomberg:

China’s Gold Reserves

China, which has just 1.6 percent of its reserves in gold, may invest more than $1 trillion in bullion, [Michael Pento of Euro Pacific Capital] said. “China wants to be an international player, and they need to own more gold than they currently have.”

...“China is out to have more gold than America, and Russia is aspiring to the same,” [Robert] McEwen, [the chief executive officer of producer U.S. Gold Corp] said yesterday in an interview in New York. “When you have debt, you don’t have a lot of flexibility. China wants to show its currency has more backing than the U.S.”

...China, with more than $3 trillion in foreign-currency reserves, plans to set up new funds to invest in precious metals, Century Weekly reported this week. Russia purchased 8 tons of gold in the first quarter.

This is a big reason gold and silver are headed higher. Occasional dips are inevitable, of course. When they happen bears will declare the bubble popped (after a one-week correction).

Then the uptrend will continue, intact. And they'll say, "bubble! bubble bubble bubble bubble,bubble!", again.

And gold bugs will be laughing all the way to the vault.

That's how I see it, anyway. Could be wrong, it's happened before. But, I did say the same thing when gold was $1140 in Why I'm Buying the Gold Dips in December 2009:

"The bottom line is that Bernanke and crew actually want inflation. It's easier than the alternatives: raising taxes or slashing spending. And it will help erase debts. It will also wipe out the savers and reward the borrowers — but that seems to be the path we're on, like it or not. 

Besides, do you really think they will allow America's debt to be paid off with dollars worth more rather than less?

Of course not. Devaluing our currency and printing money are part of a strategy. A reckless and morally hazardous one, but still a strategy.

So that's why I still am bullish on precious metals. I'm hoping for a nice pullback in gold and silver. It'll be a great buying opportunity. Once everyone realizes that the Fed's printing presses are just getting warmed up, it'll be off to the races again."

The time will eventually (and sadly) come to sell significant amounts of precious metals, but I just don't see us being close to that point yet. Inning 4 or 5, if this were a ballgame, perhaps? "

Lots more printing ahead, though it's hard to say how much. My view has been that we see at least QE5 (possibly under a different name) and $3,500 gold and $150 silver before things top out.

It all depends on how much inflation the public will take before it declares shenanigans; forcing spending cuts and a tightening of monetary policy.

Then - after a (hopefully brief) adjustment period - America and the world will be on a path to sustainable growth. A time to move from being overweight in metals, and shift into stocks and real estate.

Updated 4/30/2011 for clarity.