China Declares War - Gold is Secret Weapon
The China Gold story has been swirling about the internet for some time. As with many gold stories, at least of late, it has been muted by rising stocks, higher bond prices and complacency. Now it is being shouted from the rooftops.
As the story goes, China is trying to corner the gold market. Lear Capital was first to bring this story to the national media via the Rush Limbaugh Show. Interest was massive and now the story is taking on a new dimension. The internet is buzzing with reports, videos have gone viral and I suspect the mainstream press will not be able to ignore the elephant in the room much longer.
It was 2009 when China last reported to the world its “official” gold holdings. At that time, its holdings had essentially doubled, rising to 1054 metric tons. It had been 6 years since China last made an official report. It's been five years now since the 2009 report with the next report due any time.
Premier Gold Analyst Jim Rickards has flat out proclaimed that China has declared war against the dollar. It intends to dethrone the dollar as the world's reserve currency by backing its own currency with gold. Literally thousands of tons of gold have disappeared from COMEX Gold Warehouses, Gold ETFs, and big banks like JP Morgan. In February JP Morgan was said to have lost 44% of its gold inventory in just 4 days. COMEX has been losing gold for nearly 2 years and Gold ETFs have been draining gold as investors are said to be losing interest.
But everyone knows, you can't sell anything without there being a buyer on the other end. For every sale there is a purchase. For every seller there is a buyer. When someone sells low, someone else buys low. It is the other side of the sell story that has been the mystery. Gold is sold and it goes nowhere. It vanishes.
Once you get past the notion that gold inventories can just vanish, the question starts to burn. Who IS buying all the gold? Russia just announced it had sold treasuries and bought 900,000 ounces of gold. Whatever their motive for making the announcement, they did make it. From China, we haven't heard a peep for 5 years. During that period, we do know China does not export any gold it produces on its own. We know China has been buying up stakes in gold mines around the globe and according to reports, we know China built a new vault that can hold 2200 tons of gold, an amount near equal to an entire year of global production.
Considering the vanishing of known gold inventories and annual production, analysts believe China's true gold reserves have quadrupled since last reports. That would make China the second largest gold holder in the world, second only to the U.S. What do you think will happen if China does make such an announcement? Russia announced its purchase of a measly 900,000 ounces and helped the gold price climb 12% off its recent low. Imagine someone shocking the world with reports of an additional 3,000 tons of gold in its reserves.
The minute this happens, the gold price skyrockets. All the rumors and claims that China has been trying to corner the gold market will become real life. The dollar will be squarely in China's sights. The treasuries bubble would burst, interest rates would soar and inflation would seize any remaining value from your savings and retirement accounts. Such an announcement would crush flimsy reports of economic recovery. Let's face it, the mere fact that we debate, near daily, whether or not the economy is recovering only proves that it is not. If it was truly recovering we would know it. An announcement from China that its gold reserves have quadrupled would end the debate.
If there was one reason and one alone for a person to add gold to their portfolio it would be this. Check it out. Connect the dots. Reports of disappearing physical gold inventories are burning up the internet. And what do you think would happen to the silver price if it became common knowledge that physical gold inventories have been depleted and now owned by China? A chain reaction would occur. Silver prices would follow gold higher. Investors would clamor to own anything real in lieu of watching their dollars shrink in value to nothing. The rush to silver may also have already begun. According to Eric Sprott, in one month India bought 22% of all silver produced. Did they buy because there was no option to buy gold?
Today both silver and gold are up a solid 12% from recent lows. Still, other data cannot be ignored. Since July of 2013, the dollar index has dropped 5%. What does this tell you? It tells me that if gold is being used to destroy the dollar, I should own some to protect my dollar investments. Silver too.
As always, these are just my opinions. If you share them I would be honored to have you follow me @DaveTheGoldDr.