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– China’s Gold Reserves: Watch What They Do, Not What They Say (ZeroHedge, March 18, 2013):
Yi Gang, Vice Governor of the People’s Bank of China (PBOC), recently made the headlines with his comments on Chinese gold reserves. On Wednesday, Mr. Yi stated that China’s gold reserves remain static at 1,054 tonnes, and suggested that a sizeable increase in those reserves would be unlikely in the future. “We need to take into account both the stability of the market and gold prices,” Mr. Yi stated, adding that as the world’s largest gold producer and importer, China produces about 400 tonnes of gold annually, and imports an additional 500 to 600 tonnes of gold every year. “Compared with China’s 3.3-trillion-U.S.-dollar foreign exchange reserves, the size of the gold market is too small,” Yi said, rejecting speculation that China would further diversify its foreign reserve investments into the precious metal. “If the Chinese government were to buy too much gold, gold prices would surge, a scenario that will hurt Chinese consumers … We can only invest about 1-2 percent of the foreign exchange reserves into gold because the market is too small,” Yi stated.
If Yi’s comments are to be believed, he is implying that the Chinese government has not added a single gold bar to its reserves since 2009 – which was the year the Chinese government officially announced its gold reserve increase to 1,054 tonnes. Given the production and import numbers stated above, we find that extremely hard to believe.
Mr. Yi’s comments stand in stark contrast to earlier comments made by Chinese government officials regarding the need to increase China’s gold reserves to ensure economic and financial safety, promote yuan globalization and act as a hedge against foreign-reserve depreciation. In 2009, a State Council advisor known as “Ji” said that a team of experts from Shanghai and Beijing had set up a task force to consider expanding China’s gold reserves. Ji was quoted as saying “we suggested that China’s gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years”.
- China Central Bank Says It Is “Fully Prepared For Looming Currency War” (ZeroHedge, March 2, 2013):
Just in case Lagarde (and everyone else except for the Germans, who have a very unpleasant habit of telling the truth), was lying about that whole “no currency war” thing, China is already one step ahead and is fully prepared to roll out its own FX army. According to China Times, “China is fully prepared for a looming currency war should it, though “avoidable,” really happen, said China’s central bank deputy governor Yi Gang late Friday.” We look forward to the female head of the IMF explaining how China is obviously confused and that it is not currency war when one crushes their currency to promote “economic goals.” Of course, that same organization may want to read “Zero Sum for Absolute Idiots” because in this globalized economy any attempt to promote demand (by an end consumer who has no incremental income and stagnant cash flow) through currency debasement has no impact when everyone does it. But then again, this is the IMF – the same organization that declared Europe fixed in 2009, 2010, 2011, 2012, 2013 and so on.
More on China’s FX troop deployments: Continue reading »
- Is the Gold Price Dependent on China? (Azizonomics, Jan 19, 2013):
China now buys more gold than the Western world:
Does that mean, as some commentators are suggesting, that future price growth for the gold price depends on China? That if the Chinese economy weakens and has a hard landing or a recession that gold will fall steeply?
There’s no doubt that the run-up that gold has experienced in recent years is associated with the rise in demand for gold from emerging markets and their central banks. And indeed, the BRIC central banks have been quite transparent about their gold acquisition and the reasons for it.
Zhang Jianhua of the People’s Bank of China said:
No asset is safe now. The only choice to hedge risks is to hold hard currency — gold.
Indeed, this trend recently led the Telegraph’s Ambrose Evans-Pritchard to declare that the world was on the road to “a new gold standard” — a tripartite reserve currency system of gold, dollars and euros:
- Deep Fried Black Swan Lands As China Admits It Has A Food Inflation Problem, Releases Corn, Rice From Reserves (ZeroHedge, Aug 13, 2012):
Last week we wrote an article that to many was anathema: namely an explanation why everyone is deluding themselves in their expectation that the PBOC would ease, soft, hard, or just right landing notwithstanding. The reason? The threat that food inflation is about to read its ugly head which is “Why The Fate Of The Global Equity Rally May Rest In The Hands Of Soybeans.” This was merely a continuation of our observations from a month ago that as a result of the Black Swan being “deep fried” in 2012, that the threat of food inflation will keep key BRIC central banks in check for a long time. As of today the threat has become fact, because as China Daily reports “China will release corn and rice from state reserves to help tame inflation and reduce imports as the worst US drought in half a century pushes corn prices to global records, creating fears of a world food crisis…The release may prompt Chinese importers to cancel shipments in the near term and take some pressure off international corn prices, which set a new all-time high on Friday as the US government slashed its estimate of the size of the crop in the world’s top grain exporter.” Sure, as every other short-termist measure the world over, it may help with prices in the short-term, but will merely expose China, and thus everyone, to the threat of a much greater price spike in the future. Because just as the strategic petroleum reserve release did nothing to help gas prices, nor the short selling ban in the US and Europe did anything to help the underlying broken financial system, so this will merely force the local population to scramble and ration whatever food they can get asap, now that the government has admitted there is, indeed, a food inflationary problem.
Bottom line – rationing is in full force, and given the continually declining state of the US corn crop, more will be needed,” said Christopher Narayanan, head of agricultural commodities research at Societe Generale. Continue reading »
- China’s Catastrophic Deleveraging Has Begun (Business Insider, July 15, 2012):
1. The frustrated and aggressive central bank
If one wants to know how bad the health of China’s economy has gone, look no further than the PBOC’s composure, which seems rather frustrated and aggressive as of late. On 5th July, the central bank cut benchmark interest rates for the 2nd time in less than a month. This happened right after the fact that in December 2011, PBOC cut the reserve requirement ratio(RRR) by a 50 bp to 21%, it followed up with another 50 bp in February and another 50 bp in May to 20% currently.
- Forget China’s Goal-Seeked GDP Tonight; This Is The Chart That Keeps The PBOC Up At Night (ZeroHedge, July 12, 2012):
As we wait anxiously for the not-too-hot and not-too-cold but just right GDP data from China this evening, we thought it instructive to get some sense of the reality in China. From both the property bubble perspective (as Stratfor’s analysis of the record high prices paid just this week for Beijing property – by an SOE no less – and its massive ‘microcosm’ insight into the bubbliciousness of the PBOC’s attempts to stave off the inevitable ‘landing’); to the rather shocking insight that Diapason Commodities’ Sean Corrigan offers that ‘Hot Money Flows’ have left China at a rates exceeding that during the worst of the Lehman crisis; take a range of key indicators – from electricity usage, to Shanghai container throughput, to nationwide rail freight ton-miles, to steel output – and you will notice that none of these shows a rate of growth during the second quarter of more than 4% from 2011, and some are as low as 1%. Whatever fictive GDP number we are presented with this week, the message is clear: “Brace! Brace! Brace!”
Via Sean Corrigan of Diapason Commodities,
Indeed, there are clear signs that some of these dangers are beginning to be realised. Taking the difference between the reported size of China’s forex reserves and the sum of trade and FDI inflows (and making some best-guess reckoning of the effects of reval changes and interest gains), one gets an estimate of hot money movements being diffused across the porous barrier of capital controls – most famously via the metals L/C rehypothecation scam. Between March’09 and February of this year, such ‘unexplained’ flows amounted to no less than $560 billion – roughly two-fifths of China’s total reserve accumulation and a third of its coincident increase in M1.
The last four months of increasing angst about the state of the ‘landing’ have seen a dramatic reversal of these flows, to the point that the discrepancy in the books suggests that China may have lost no less than $128 billion – a flight which exceeds that suffered during the worst of the Lehman crisis.
- Exclusive: U.S. lets China bypass Wall Street for Treasury orders (Reuters, May 21, 2012):
China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury’s first-ever direct relationship with a foreign government, according to documents viewed by Reuters.
The relationship means the People’s Bank of China buys U.S. debt using a different method than any other central bank in the world.
The other central banks, including the Bank of Japan, which has a large appetite for Treasuries, place orders for U.S. debt with major Wall Street banks designated by the government as primary dealers. Those dealers then bid on their behalf at Treasury auctions.
They refuse to allow the yuan to strengthen because they know that once they do that it will mark the real end of the dollar era. So instead they are spending like crazy on infrastructure ahead of them allowing the dollar to plunge. Then the strong yuan will be employed to purchase all the commodities they need to utilize their infrastructure and the OECD gets priced out. To those that talk about yuan devaluation, you need to be specific. Devaluation versus what? Versus commodities generally along with other currencies? I can buy that argument very easily. Versus the dollar, highly doubtful. Why? The latest data says China owns $877.5 billion in U.S. treasuries. All they have to do is start dumping and the dollar is finished as the Fed will be forced to print so many dollars it will make Mugabe blush. People need to wake up.
(Mike Krieger, formerly a macro analyst at Bernstein, and currently running his own fund, KAM LP, summarizies the pretend reality we are all caught in now, knowing full well America is set on a crash course with reality at some point, yet sticking our collective heads in the sand, as the collapse will be some time in the “indefinite” future. In the meantime, banks will continue to boost US GDP by peddling “financial innovation” and restructuring advice to countries like Greece… and nothing else.)
Ready for the greatest financial collapse in world history?
This is the ‘Greatest Depression.
- China moves on currency after growing US pressure (Telegraph, April 14, 2012):
China took a major step closer to turning its yuan into a fully tradable global currency today, by doubling the range by which it is allowed to rise or fall against the dollar.
The People’s Bank of China said that from Monday it will double the trading band, so that the yuan can fluctuate by 1pc every day from a mid-point, compared with its previous limit of 0.5pc.
The move demonstrates Beijing’s belief that the yuan is now stable enough to handle major structural reforms, despite slowing growth of the Chinese economy.
Analysts said the slowdown may have actually spurred Beijing to make the change, because the Chinese government knew it could introduce the larger band without causing a spike in the yuan’s value.