What happens when China has all the gold it wants?
Bayard1908
Posts: 4,046 ✭✭✭✭
The Chinese have been buying huge amounts of gold, presumably for central bank reasons, possibly a gold backed Yuan. What happens to the gold price once China obtains the quantity of gold it desires and stops buying?
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Really no different than it is now, at least the supply/demand issue, because we're not mining that much gold.
So a better question might be What happens when China decides it doesn't want that gold anymore.
--Severian the Lame
Let's revisit this question in 3 more years. Until then, game on.
Fellas, leave the tight pants to the ladies. If I can count the coins in your pockets you better use them to call a tailor. Stay thirsty my friends......
Knowledge is the enemy of fear
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
China carries our debt so the big question is how would they ever collect? Could we repudiate the debt much like an insolvent debtor? I don't think so. They will continue to stockpile valuable assets, real estate, carry our debt as long as they are assured it isn't "bad" debt...
<< <i>Price continues upward. The more China hoards the less the available supply.
When the largest buyer stops buying the price will continue to go up? I don't see how that logically follows. Gold gets mined every year and somebody has to buy the new supply.
<< <i>They won't be happy until they have 5,000-8,000+ tonnes in inventory (ie #1 or #2 in the world). It will take at least 3-7 more years to accomplish that.
Let's revisit this question in 3 more years.
I don't think any outsiders truly know how much gold they have. Even assuming they intend to accumulate for years to come, how is this party going to end? Central bank actions regarding gold have been a counter indicator in the past.
What happens to the dollar when they use all those extra dollars buy gold,oil,food,etc?
<< <i>I wish China had ALL the gold. Every ounce. Then we could truely see its value. >>
Yeah just like DeBeers and the diamond market.
The Hunt Brothers did in many respects corner the silver market quite legally. Rule changes that bordered on illegality were subsequently initated to penalize them.
The FEDs left the Hunts alone for 5-6 years as they paper traded futures. But in 1979 when they started stockpiling physical silver and disrupted the market, that's when the big boyz
took them out. The Hunts lost faith in those paper contracts and decided to get the real thing, much the way the current market is heading as Comex relevance diminishes.
The CB's and govts of the world will never let any one entity or nation corner the gold market. The USA came the closest to that in modern times back in the 1920's.
So we'll never get the chance to see China hoard every ounce. The British in the 1800's and the US in the 1900's did pretty well for themselves holding large quantities of
gold. I suspect the Chinese will do just as well when they achieve a world class inventory. Be careful what you wish for. The balance of power would shift quite a bit with the
Chinese matching the 8,100 tonnes the US holds....that is....assuming the US hasn't leased or sold much of theirs over the past 20 yrs.
If it is to establish backing for their currency, it seems that the reason would be to establish it as an alternative to the dollar and by having a gold component behind it, their currency would be more promotable and more reliable, with less need to discount it in trade dealings.
If that is the case, then one would have to ask why they wouldn't keep buying as time goes by? I see their gold buying as being consistant with what we know about China's buying of other critical natural resources. It enhances their power, and all of the pieces of the puzzle are additive.
The US had better stop giving every advantage away. Like him or not, Trump is onto the cold, hard facts.
I knew it would happen.
<< <i>
<< <i>I wish China had ALL the gold. Every ounce. Then we could truely see its value. >>
Yeah just like DeBeers and the diamond market.
The Hunt Brothers did in many respects corner the silver market quite legally. Rule changes that bordered on illegality were subsequently initated to penalize them.
The FEDs left the Hunts alone for 5-6 years as they paper traded futures. But in 1979 when they started stockpiling physical silver and disrupted the market, that's when the big boyz
took them out. The Hunts lost faith in those paper contracts and decided to get the real thing, much the way the current market is heading as Comex relevance diminishes.
The CB's and govts of the world will never let any one entity or nation corner the gold market. The USA came the closest to that in modern times back in the 1920's.
So we'll never get the chance to see China hoard every ounce. The British in the 1800's and the US in the 1900's did pretty well for themselves holding large quantities of
gold. I suspect the Chinese will do just as well when they achieve a world class inventory. Be careful what you wish for. The balance of power would shift quite a bit with the
Chinese matching the 8,100 tonnes the US holds....that is....assuming the US hasn't leased or sold much of theirs over the past 20 yrs. >>
DeBeers doesnt own all the diamonds. 100 million women in this country can attest to that. But to further your arguement, when I take a 1/2 ct diamond to my jeweler, im not going to be able to get many goods or services for it. Same would happen for gold. If China owned it all, that means everyone else was willing to part with it. It just became worthless to 99.99999999% of the world.
Regarding the Hunts---the only reason silver went so high is BECAUSE of the paper market. Paper sets the physical price. Without paper liquidity, silver would never have acheived those prices.
Same would happen for gold. When one entity owns it, all liquidity is gone.
Knowledge is the enemy of fear
I knew it would happen.
<< <i>China carries our debt so the big question is how would they ever collect?" >>
By trading dollars for gold.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
If China can't get enough gold, then can simply lease it from our own Central Banks!
Its all a juggling act, and it goes back and forth, and apparently juggling more than is actually physically there..
The only gold you really own is in your pocket or teeth.
Diamonds are abundant, controlled, and distributed slowly and carefully into the market to keep the price high, so the last sucker on the buying chain pays the most.
The US, I believe, has more oil and natural gas than either "Super Power". Will the further development of our fossil fuels trump the gold play? Will the emerging markets demand more oil or more gold? Just wondering?
If we don't get leadership that will promote the vast energy resources this country holds, we'll never know.
In summary, my question...... We know the dollar is doomed, we know gold is currently sought by central banks (governments), could oil/natural gas be the solution to our fiat
crisis?
<< <i>Silver spiked in 1980 because the exchange couldn't deliver on its paper committments, so they changed the rules. >>
Thats not my understanding. I believe the Hunts wanted more physical but couldnt get it so they bought paper.
Paper is what pushed silver to $49 last year also.
Paper is what will push silver to $100---if we're lucky.
Without paper, the PM market is WAY TOO ILLIQUID. Paper allows investors to hedge their investments. Without the ability to hedge, large investors wouldnt even consider PMs. Physical NEEDS paper.
But really, I would love to see China own all the gold. And I wouldnt for 1 nanosecond consider them to be superior to me (America) in any way shape or form.
Knowledge is the enemy of fear
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
They wanted to take delivery of physical on contracts that they already owned and the exchange didn't want to deliver. They had maturing futures contracts coming due, and had every right to demand delivery of their expiring contracts. Yes, they were leveraged with other contracts, but they also had a legal right to take delivery.
1) The exchange then changed the rules to only allow the selling of contracts, no buying. This immediately started putting downward pressure on the price.
2) At the same time, the exchange raised the margin requirements, which put the Hunts into an immediate margin call on all of their outstanding leveraged positions. This also caused them to seek immediate cash, which was not forthcoming because
3) Paul Volker raised overnight funds to 21% at the same time.
At that point the market gapped down about $10.00 which pushed the Hunts into an un-recoverable position. Yes, they were planning to buy more physical but they couldn't get it because their solvency evaporated at the same time that their liquidity evaporated.
Of course, the exchange fared much better. The kicker is that the Hunts didn't do anything wrong, or illegal.
I knew it would happen.
Knowledge is the enemy of fear
We see it differently. The exchange broke their own rules for their own private gain. I see that as wrong.
I knew it would happen.
Theoretically then, three things would happen.
The Chinese Yuan would become the world currency.
China would control the world's economy.
Lastly, the price of gold would be astronomical.
"“Those who sacrifice liberty for security/safety deserve neither.“(Benjamin Franklin)
"I only golf on days that end in 'Y'" (DE59)
<< <i>We see it differently. >>
my new sig line.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>I don't see where the exchange or Volker did anything wrong or illegal either.
We see it differently. The exchange broke their own rules for their own private gain. I see that as wrong. >>
The rule is that the exchange can change the rules.
How many people gots crushed by the Hunts involvement? The exchance has the responsibility to protect the masses, not just a few asses. Hunts got what they deserved. As did those who tried to ride the wave.
Knowledge is the enemy of fear
<< <i>China wants all the gold in the world.
Theoretically then, three things would happen.
The Chinese Yuan would become the world currency.
China would control the world's economy.
Lastly, the price of gold would be astronomical. >>
How would China control the worlds economy? Would they produce every good and service?
Knowledge is the enemy of fear
If we consider how many diamonds DeBeers has set back in inventory and still underground....they still might own most of the world's diamonds. 100 MILL women in this country own
diamonds....most of them small enough that their resale value is very poor. If I take my 1/2 carat to a jeweler I won't get squat for it unless I "trade up" into a larger stone...forget about getting goods and services. Fwiw, jewelers don't pay squat for diamonds, gold coins, gold scrap or anything else for that matter. You have to go to a coin/bullion dealer or metals refiner to get a fair price for your gold. If I take my gold down the local coin shop I'll get a strong market price and will have that in cash within an hour to buy all the goods and services I need. That beats the huge haircut I'd have to accept to sell a diamond (or anything for that matter) to a jeweler.
Those 100 million women also own gold rings and jewelry. But we're comparing apples to oranges here. Diamonds are far more illiquid that gold scrap, gold bars, gold coins. It's not even close. The resale values of 95% of the diamonds sold is poor (ie not true investment grade). You HAVE to go to a jeweler or coin dealer who will pay you 20-50c on the dollar or less vs. your orig purchase price new. Jewelers do have a world monopoly on diamonds. There is no one, not even Central Banks with their claimed 32,000 tonnes of gold that have a monopoly on gold. But I might agree that the banks do have a monopoly on paper gold....but even that grip has been loosening. You don't like the offer you received on your 1/2 carat diamond? Tuff nuts. You have no option except to try another pawn or jeweler who will offer a similar amount. Fortunately, your options for gold are much better. To even suggest that China could hoard 20% of the world's gold (30K tonnes), let alone 100% is pure fiction. Let's at least compare something they could actually hoard close to 100% of the world's upply.....like rare earth metals.
Yeah, the Hunts got what "they deserved" by legitimately buying silver contracts, then silver bullion to hedge against the govt's inflationary policies. How thoroughly unpatriotic of them. Did JPMorgan get what it deserved by "legally" shorting 19 yrs of world silver production in July 2008 as a "legitimate hedge" against all their "huge portfolio" of silver mining businesses? No...not yet. But wait for it. When good ole Warren Buffet stockpiled a similar amount as the Hunts did in the 1990's (130 MILL oz silver) there was no smackdown for the big B. He held that silver for about 10 yrs until it became needed by the banksters to help support, control, or even fund the SLV startup in 2006. Rather than being taken down for his silver buying, WB was given sweetheart Billion dollar deals during the peak of the banking crisis. The Hunts dealt mainly in paper contracts from 1973 to early 1979. But by 1979 they realized they needed to convert paper into bullion the way things were going. They knew that the paper market was probably more of a scam....just like it is today. In other words the "paper liquidity" wasn't worth a whole lot at that point. One could say that when the Hunts started pulling silver out of the market in 1979 that's when the SHTF. Recall that gold out performed silver from 1970-March 1979 because up to that point both were paper games. The Hunts were right to fear the paper overseers and get their money out the system. They just weren't quick or stealthy enough. Rather, they should have been pulling out silver all along like good ole Warren did. Buffet was stealthy enough in his move that few in the upper echelons even knew what he was doing. He pulled out 130 MILL oz without even doubling the price of silver. How many CU forum members that stack silver are doing it in paper CME contracts? Not many, if any. Even Gerald Celente learned this lesson again in 2012. All stackers here understand the lessons learned from the Hunts in 1979. If you don't hold it, you don't own it. The Hunts taught us that. Of course FDR taught us long before the Hunts that if you own it, you may not own it for long.
As long as China has trillions in paper reserve currencies, they will never have "all the gold they want."
China DOES NOT have nearly all the REE. Not even close. What they do have is nearly 100% of the mining of REE. Huge difference. The USA and Canada have tremendous reserves of REE, but we do not mine them.
The Hunts simply overstayed their welcome. There was nothing wrong with them buying silver at $4 and selling it at $40, but they wanted $100. They got greedy and lost. They were given the opportunity to increase their wealth 10x. That my friend in not unpatriotic.
And regarding my example, you are proving my point. Diamonds are virtually worthless and one entity controls the market.
Knowledge is the enemy of fear
diamond analogy not withstanding. If anything, the diamond analogy supports that gold would not be worthless, maybe even more valuable in the hands of one major entity.
The poor resale on diamonds has nothing to do with this. That exists because of the 2X to 6X markup that occurs when buying diamond jewelry. No such markup occurs in gold bullion unless you are a senior citizen buying from boiler rooms over the phone. But we both agree that 99% of diamonds are not investments and have nothing in comparison to gold...or even rare earths for that matter.
China having nearly all RE current production is essentially a monopoly for now. Metal in the ground is still in the ground...unobtainable. There's lot of gold in the ground too, it doesn't have much of an effect on the gold price until it is mined. Current underground gold deposits are worth $75-$200 per oz in the hands of junior explorers, and maybe $200-$400/oz in the hands of the larger mining companies. A large % of these "deposits" held by juniors will never be mined....at least not in the current commodities cycle and not in the next 10 yrs.
The Hunts weren't looking for any specific number in particular that I'm aware of. They wanted to get bullion silver instead of silver contracts and get it out of the country where it
couldn't be stolen from them. They started flying the stuff over to European vaults. The Hunts toiled from 1973-early 1979 with little results for their efforts. I bet they took some
good hits during the 1974-1976 smackdown. Silver was still $5/oz in spring 1979. Most of the gains occurred later in the year long after the Hunts decided to start asking for delivery on their contracts. They did that because they realized they had their butts hanging out due to margin, margin changes, rule changes, etc. They had little to show for 6 yrs of work when they made the decision to stand for delivery. Most of the fireworks came in late Nov '79 to January '80 when silver tripled....hardly the timing to say the Hunts were not happy with $40/oz. Let's not forget that rules were changed to only allow the selling of paper contracts. I doubt the Hunts even had a chance to sell out at $40/oz as there was only 1 day in January where I believe silver closed above $40/oz. Even in mid-Nov '79 silver was still in the $15 range. It may have been that with their position size and the PTB stacking up against them that they might not have been able to get out safely $30 or even $20/oz. But who knows. You can bet that by November's $15/oz the major shorts in the silver industry were well into planning the Hunt's demise. There are lots of people here that bought silver back at $4 or $5 in 2002-2003 and weren't satisfied with a tripling in price. I guess that makes them as bad as the Hunts. Heck, I'm planning on $135/oz silver. Mea culpa.
If I am not mistaken, the officers in the CME and Comex exchanges had short positions in silver at the time and directly profited from their change in the rules. And you are correct about one thing - it's their exchange and they can indeed change the rules.
However, the terms of the existing contracts should not be changed retroactively - which is what they did. In my opinion, that is completely wrong and is just as bad as Jon Corzine stealing from his customers' segregated accounts and then having a corrupt judge let him off of any criminal charges.
I knew it would happen.
Hunts were doing and why. Maybe jmski52 knows who the author was?
The CBOT was the first to initiate action againt the actions of the Hunts. Margin requirements were raised in October '79 as well as a limit on how many contracts one could hold.
The COMEX eventually followed that lead later down the road. It could be said that by price capping silver, the FEDs were also capping the price of gold <$900. The reason the Hunts got into silver in 1973 was to find an inflation hedge to protect their wealth. At that time you couldn't own or trade gold bullion. And the Hunts also felt that gold was way too manipulated by govts (ie the London Gold Pool from 1962-1968). So they turned heavily to silver in 1973 after some small buying since 1970. They had a relatively small effect on silver prices from 1973-spring 1979. Gold went to $875 w/o any help from the Hunts. There were some other large buyers at that time that were matching the Hunts. So one could say that silver still would have reached $30-$35/oz even if the Hunts had never been there. But they were convenient scapegoats to blame the ills of the economy on. And certainly, they got a bit too greedy. They'd have been better off if they played this game in later years when "greed was good."
1. What goes up does come down and most of the time faster than it went up.
Carry on lads.
This one?
Added - I wonder why Deadhorse left us. He was a great poster. Anybody know where he went?
I knew it would happen.
<< <i>There was an excellent in-depth article on the Hunts that I posted here a couple of years ago. Wish I could find that. It had all the month by month details in 1979 of what the Hunts were doing and why. Maybe jmski52 knows who the author was?
This one?
Added - I wonder why Deadhorse left us. He was a great poster. Anybody know where he went?
Musta got bopped, I don't think he wouldn't be sitting out of a lot of these "discussions."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Silverfinger
<< <i>There was an excellent in-depth article on the Hunts that I posted here a couple of years ago. Wish I could find that. It had all the month by month details in 1979 of what the Hunts were doing and why. Maybe jmski52 knows who the author was?
This one?
Added - I wonder why Deadhorse left us. He was a great poster. Anybody know where he went?
Deadhorse was a very angry person. His emotions probably got the best of him.
I see no comparison to Corzine and the COMEX. Corzine should, at the very least, be in jail. The COMEX has a responsibility to the masses, not just a few who wish to conspire and/or manipulate
Knowledge is the enemy of fear
<< <i>Deadhorse was a very angry person. His emotions probably got the best of him. >>
Maybe he's still here, but with a "makeover."
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
They don't have all the gold they want yet , according to this they imported more gold in 2012 than the ECB owns in total
zerohedge
(1) Why are they hoarding?
(2) Are they converting US bond paper into gold?
My guess:
(1) gold backing to capture world reserve currency status.
(2) Yes
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>The two most important questions are:
(1) Why are they hoarding?
(2) Are they converting US bond paper into gold?
My guess:
(1) gold backing to capture world reserve currency status.
(2) Yes >>
I can agree with (1) but I'm no longer so sure about (2). They may not be buying new TBonds but may also not be selling many either to remain on good terms with the US govt.
For now they like to keep the Yuan on even terms with the Dollar. They could buy gold with paper FRN's, freshly printed Yuan, or other means.