- As much as the Chinese like to hide their gold purchases, it is inevitable it will come out into the open. How do you dispose of US$1.5T in USD denominated foreign reserves without attracting attention? It isn’t quite possible. Local Chinese production can only supply so much of gold. Eventually, the Chinese will dump their massive USD hoard and buy gold in the open market!
Pierre Lassonde – Strong Forces Propelling Gold
….“While traveling last week I was speaking with an individual from a top bullion bank from Europe. He said his trading desk has seen their Chinese business go up to record levels in the last two weeks. The most interesting aspect to me is the fact that the Chinese central bank is diversifying their reserves away from the dollar, and they are literally buying all of the local gold production inside China.”
“Because of this the Chinese jewelers are not getting any gold, so they are having to purchase all of their gold on the open market. Internal Chinese citizen demand is already 350 tons per year, and growing by about 15% per year relentlessly.”
“Chinese demand is already at high levels, so another 15% added to existing demand raises their citizen’s appetite for gold to over 400 tons next year. If the Chinese central bank continues to consume internal production at the rate they are, it would be difficult for the gold market to experience a major correction. The Chinese central bank would have to back off purchases of internal production for 3 months or 6 months to get a major reaction in the gold market.”
“The Chinese are worried that the world will discover that they are getting out of the dollar and buying gold. If they are seen as buying gold on the open market, their fear is that will be viewed as repudiating the US dollar. Then they’ve got a real Excedrin 3 (headache) problem. That would create more competition for gold, driving the price of gold higher and the dollar lower. They would then have to buy even more dollars to keep the peg.”
“They keep buying the US dollar, but they know it is not sustainable. The risk there is that they create significant inflation, thus destabilizing the country. High inflation inside of China would be extremely dangerous and could literally spark a revolution. They want the gold, but they have to balance that with stability.”
“The Chinese central bank is doing the right thing, they are using gold as one of their underlying assets, but the problem is that they should have a lot more gold then they currently possess. This is one of the major factors driving the gold market today.”
- QE 2.0 is a foregone conclusion. The amount cited by Bob Chapman, which I believe is closer to the truth, is US$2.5T for the coming fiscal year. The FedRes as already monetized something like US$1.3T on toxic MBS, agency debts/derivatives and on top of that has bought in excess of US$300B in treasuries. The FedRes is already quietly buying up more treasuries as China and foreign countries step on the brakes in their bond purchases.
- If QE is really the solution, the FedRes should go the whole hog and print US$1M for every man, woman, child and their dog. They should abolish all taxes and dissolve all debts by QE. Helicopter Ben Bernanke has said the ultimate heresy: His job as central bankster is to stimulate inflation! The USD is toast and with it all major currencies. The Eurozone and Japan have intractable debt problems too. They will never be paid back.
Fed’s Lockhart: Quantitative easing must be big
WASHINGTON (Reuters) – Atlanta Federal Reserve Bank President Dennis Lockhart said on Tuesday that further easing by the Fed has to be large enough to help boost demand, and purchases of $100 billion of securities a month would be a possibility.
“If we’re going to pursue another round of quantitative easing, it has to be a large enough number to make a difference,” Lockhart said in an interview on CNBC. “As a monthly number ($100 billion) is fairly consistent with what we did before, and so I think it would certainly be in the range of numbers one might consider … but if you were talking about $100 billion as simply the overall program, I think that’s too small,” he said.
Most analysts expect the Fed to announce another round of large-scale asset purchases at its next policy meeting scheduled for November 2-3, and expect buying of around $500 billion overall. Lockhart said he is leaning toward providing further help to the weak recovery.
“I think the risks associated with it are acceptable,” he said. “Quantitative easing will help improve a recovery that is going very slowly and improve the trajectory of the economy overall.”
- If you believe what bankster Tim Geithner says, I have a bungalow on Jupiter I want to sell to you. It is sea front property and you can swim with Jovian dolphins.
- America’s debts are well over US$100T when you include in Social Security, Medicare, bankrupt pension funds, state obligations….. The US$13T bandied about as the national debt is not a true reflection of the deep shit the country is in. These debts and obligations will never be paid back. Where do you get the money to finance or pay off these debts? You do economic hocus-pocus, Quantitative Easing, creating money out of thin air. Obviously, it is currency devaluation. The USD is toast.
- The populace will realize this and there will be a currency event: the overnight collapse in the USD. Hyperinflation will race around the world as everyone dump USD for hard assets. A global monetary crisis is inevitable! Got Gold yet?
US Treasury chief Timothy Geithner says America will not engage in dollar devaluation
Timothy Geithner, the US Treasury Secretary, said the United States would not engage in a currency war by devaluing the dollar to boost the country’s flagging economy.
“It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to [be] competitive,” he said. “It is not a viable, feasible strategy.” The dollar strengthened against a basket of currencies after his comments to business leader in California’s Silicon Valley on Monday, including the yen, euro and sterling.
This is the first time since February that Mr Geithner – who helped create the “strong dollar mantra” in the 1990s – has broken his silence on the weakening US currency. It also comes ahead of this weekend’s meeting of finance leaders from the Group of 20 wealthy and emerging nations in South Korea, which is expected to be overshadowed by a dispute between China and the US over the valuation of the yuan and growing fears of protectionist currency wars.
The weak dollar has already led export-focused Japan to launch an unsuccessful intervention to strengthen the yen, while Brazil has warned that an “international currency war” was hurting his country’s competitiveness – a weak dollar causes more funds to flow into Brazil and other emerging market economies, pushing up currencies.
The dollar has fallen 7pc since late August when Fed chairman Ben Bernanke hinted at the possibility of fresh stimulus to stoke the world’s largest economy. Answering audience questions before the Commonwealth Club of California in Palo Alto, he said the US needed to “work hard to preserve confidence in the strong dollar.”
On Friday, the dollar index hit a 10-month low against a basket of major currencies, while the greenback has been plumbing fresh 15-year lows against Japan’s yen.
Brazil on Monday moved to cool a strong rally in its currency by raising taxes for foreigners buying local bonds and trading in foreign exchange derivatives. Finance Minister Guido Mantega said the move was aimed at reducing foreign investment into Brazil, and he urged other countries to take coordinated action against the weak dollar.
Argentina’s Minister of Economy and Public Finance Amado Boudou on Monday called on developed nations to focus on creating jobs rather than actions that weaken their currencies, saying a “true currency war” was underway.
However, the US say the problem is China’s restrictive exchange rate regime, which until recently had kept the yuan largely pegged to the dollar. It wants China to allow the value of the yuan to rise.
- More and more central banks are waking up to the fact that the USD is toast! As much as 60% of foreign exchange held by central banks are in USD. Imagine when they start to dispose of their USD holdings. What is the choice? Can you buy wheat or corn and store them as money? Can you accumulate copper and iron as substitute for fiat currencies? Imagine the amount of warehouses you have to build. Think about the decay of agricultural commodities, the rats and mould, fungus problem. What is the choice? Can you use copper or iron as money as settlement for international trade? What is the choice?
- It is a matter of when the world begins to dump its USD holdings for gold. China alone with its US$1.5T will cause the price of gold to go to the moon. Throughout 5000+ years of history gold has been money. It was only when Nixon defaulted on US obligations and delinked the USD from gold that currencies around the world became funny money. The world will head back to a gold standard sooner or later.
South Korea’s central bank looks to gold
South Korea, holder of the world’s fifth-biggest foreign exchange reserves, is considering expanding its small holdings of gold to diversify its dollar-heavy portfolio. “We need to give careful consideration to the matter of increasing gold volumes in the foreign reserves,” Kim Choong-soo, governor of South Korea’s central bank, told a parliamentary committee on Monday.
Such a move would have a powerfully bullish effect on the gold market. With just 14 tonnes of gold — or 0.2 per cent of $290 billion reserves — Seoul is one of the smallest holders of gold among large economies. The world average is about 10 per cent, according to the World Gold Council, while countries such as the US, Germany, and France hold well over 50 per cent of their reserves in gold.
South Korea would join other Asian countries including China, India, Thailand, and Bangladesh in adding gold to its reserves. With emerging market countries buying gold and central banks in Europe halting their programmes of sales, central banks are set to become net buyers of gold this year for the first time since 1988, according to GFMS, the precious metals consultancy.
That trend is one of the most important changes in the gold market in recent history, and has helped drive the metal’s rally to a series of fresh highs. On Thursday it touched $1,387.10 a troy ounce, an all-time nominal record.
South Korea’s central bank stressed any moves would have to be “cautious” and “prudent” because of the high gold price. One person familiar with the Bank of Korea’s stance on the metal said it was “receptive to the idea” of buying gold but stressed that there remained “differences of views” within the central bank.
Historically, Seoul has favoured Treasury bills over commodities because they are more liquid and can be used as a weapon to control the notoriously volatile won. However, this reliance on the dollar, which makes up 63 per cent of reserves, has attracted widening criticism in recent years as commodity prices have soared. The rest of Seoul’s reserves are in euros, sterling, and yen.
Lee Ji-pyeong, senior researcher at the LG Economic Research Institute, said South Korea should have started building up gold stocks last year. Increasing its holdings now would be difficult but worthwhile, he said.
“The bank is likely to remain hesitant, waiting for gold prices to come down, which is unlikely,” he said. “Although gold prices have risen sharply in recent months, the upward trend is likely to continue for now as the dollar is likely to remain weak, with Ben Bernanke talking about additional easing measures and central banks worldwide likely to keep buying gold amid ultra-low interest rates.”
Another issue for central banks looking to diversify into gold is the size of the market. Relative to the size of foreign exchange reserves, the gold market is tiny, meaning any large purchases could drive up the price. An increase in Seoul’s gold holdings of just a few percentage points would translate into 100-200 tonnes of purchases — a significant additional source of demand compared to annual production from mines of just 2,500 tonnes.
- This is very bullish news for silver investors. Industries can do without gold. Even for jewellery, you can use platinum. But this is not the case for silver. All electronics gadget need silver. At current prices a notebook uses about US$1-2 of silver, each handphone/IPhone uses about US$0.50-1.00 of silver. Silver is a must for alot of batteries and even the newer generation of batteries for electric cars. Silver has many new applications as a biocide in the healthcare industry. The industrial applications of silver are enormous. Investment demand is just starting to rise.
Silver Shipments From China, Biggest Exporter, May Plunge by 40% This Year
Silver exports from China, the world’s largest, may drop about 40 percent this year as domestic demand from industry and investors climbs, according to Beijing Antaike Information Development Co.
Shipments may decline from about 3,500 metric tons in 2009, said Feng Juncong, chief analyst at the state-owned Antaike, without providing a specific forecast. Customs data show exports plunged almost 60 percent to 970 tons in the first eight months. Cancellation of an export rebate in 2008 is also hurting shipments, she said.
Reduced exports may bolster prices that are trading near a 30-year high on speculation that governments worldwide will take further steps to stimulate their economies, weakening currencies and increasing demand for assets that are a store of value. China, the third-largest producer after Peru and Mexico, revoked export rebates in August 2008 to curb use of natural resources.
“There is huge demand in China this year and that has affected exports, which were already hurt after the tax rebate was abolished,” said Ng Cheng Thye, head of bullion at Standard Bank Asia. “The demand is coming from all areas, including jewelry, investment and fabrication and this has resulted in a physical market shortage in the Far East.”
The metal for immediate delivery touched $24.92 an ounce on Oct. 14, the highest price since September 1980, and traded at $24.2750 at 2:28 p.m. in Singapore. Industrial applications for silver, including electrical conductors and batteries, represent about half global demand.
“China may sharply reduce its silver exports this year following the scrapping of the rebate and as domestic demand picked up amid expectations for higher inflation,” Feng said. This year’s 5,100-ton quota is unlikely to be fully used, she said.
Silver has rallied 44 percent this year, outperforming gold and copper. In the short term, prices will be between $20.50 and $25.50, GFMS Chairman Philip Klapwijk said on Oct. 16. “Silver is likely nearing a top now, and that it has more downside in the short term than upside,” he said. “But we remain bullish in the long term.”
China’s silver production, including mined, by-product output and recycled material, grew by an average 14.9 percent every year in the 20 years since 1990 to 10,348 tons in 2009, Feng said. Growth was mainly because of the fast-growing production of lead, zinc and copper, which generates silver as a by-product, Feng said.
The country’s silver output dropped 1.9 percent in the first eight months to 7,445 tons, she said. About 60 percent of China’s silver mined output is in the form of by-product of base metals, according to Antaike estimates. An expected drop in lead and zinc concentrate supplies will affect domestic smelter production, weighing on China’s silver output growth, she added.
“There are Chinese investors now hoarding silver, along with other resources, amid anticipation of higher inflation,” Feng said. “China is short of resources so these investors believe the metals will be more valuable in the future.”