Stocks and Precious Metals Charts - On Top of the World - Le Dénouement, à la Chinoise

“On top of the world,
Or in the depths of despair—
Happy alone is the soul that loves."

Johann Wolfgang von Goethe,  Klärchens Lied, aus Egmont

Stocks were on a wild tear higher.

Let's chalk this one up to the words of Fed Chair Jay Powell who sees a strong economy permitting more interest rate increases.

Gold and silver were taken out to the woodshed and beaten lower, with the Dollar slightly higher.

Stocks are putting in another blow off top. Don't try and get in front of them, but this one will end up like the rest.

Our defining character is fraud in the service of Mammon.

And the Deep State is howling a hurricane.

Trumpolini is fortunate in his opposition.  Which is too bad, because he brings out the worst in his followers.  And unfortunately the opposition tries to answer in kind.   Too bad. Darkness cannot defeat darkness.

Little Dolly has been sitting in my lap, shivering with fear, since a cold front bringing thunderstorms has started rolling through. 

As a reminder, there will be a stock options expiration at the end of this week.

And a Comex precious metals option expiration next week on Thursday, the 26th.

The struggle to cover the physical gold withdrawals from the Hong Kong Comex listed warehouses continues. Not to mention the less visible, like Singapore.

There is certainly nothing happening with the gold warehouses in New York.  It is locked down tight, like a morgue.

Gold is flowing from West to East. It is the most striking phenomenon of modern monetary developments. And yet so few see it, and fewer remark on it.

Smells like teen spirit. Or is that desperation? The price action tells us something. What is it?

This is quite a wild party being thrown for us by the elite—   a bonfire of the vanities, we suspect. Part three, le dénouement.

And they all fall down.

Need little, want less, love more. For those who abide in love abide in God, and God in them.

Have a pleasant evening.

Why China Is the Golden Dragon In the Room That So Few Will Even Discuss

This analysis originally appeared at the USAGold website.

Why China thinks gold is the buy of the century
  by Michael J. Kosares

               

   Let's start with some big, but digestible numbers:

$3,950,000,000,000 = China’s total foreign exchange reserves

$1,250,000,000,000 = Value of the world’s 31,866 metric tonnes gold reserve at $1220/troy ounce

_________________________________________________________________________________________________________

 $1,280,000,000,000.  = China’s holdings of U.S. Treasuries in its foreign exchange reserves

 $   319,000,000,000. = Value of U.S. 8133 metric tonnes gold reserve at $1220/troy ounce

_________________________________________________________________________________________________________

Now let's delve into what those numbers might mean to the average gold owner...

When it comes to the gold market, China is the dragon in the room. With its nearly $4 trillion in foreign exchange reserves and potential purchasing power, that presence is formidable. 

How formidable?  Consider this:

- China could purchase the total United States gold reserve (8133 metric tonnes) with 8% of its foreign exchange reserves.

 

- It could purchase the total global gold reserve (31,866 metric tonnes) with 32% of its foreign exchange reserves.

- It could purchase all the gold stored by Exchange Traded Funds (+/- 1750 metric tonnes) with less than 2% of its foreign exchange reserves.

- At $4900 per troy ounce, the value of U.S. gold reserves would match China’s U.S. Treasury holdings of roughly $1.28 trillion. 

- At $4700 per troy ounce, the value of the world’s gold reserves would match China’s total foreign exchange reserves of roughly $4 trillion.

- To put it another way, China could pay double the current price for the world’s total gold reserve and still have nearly $1.5 trillion in foreign exchange reserves.

- China sits atop the list of the world’s foreign exchange holdings.

The United States ranks thirteenth at $133 billion.  For the United States to ascend to the top of the rankings, it would need to revalue its $319 billion gold reserve to almost $4 trillion – or raise the value to just under $15,300 per troy ounce...

There is quite a bit more.  You may read the entirety of Michael's very interesting analysis here.

I think someone could make a valid point that this analysis presumes that China is all that interested in buying gold.

And guess what? They are!    They are buying the hell out of it.  And they are encouraging their people to do so as well.

We just don't know yet how much they are buying, and why.  But I am sure we will find out, eventually.    In the meanwhile, no one outside the blogosphere seems to be interested in talking about it, or even admits to knowing it.

Central Banks turned net buyers of gold around 2006 after a long period as leasers and net sellers.  

 

The only countries that have not visibly gotten with the program are the core members of the Anglo-American banking cartel.  They have been conducting a fairly obvious, and often clumsy, campaign to discourage public interest in gold and silver ownership amongst their own people with varying degrees of success.  

 

There is much talk of precious metal market manipulation in New York and London.  The leverage in their opaque markets is substantial.  The Fed has stated that it could not return Germany's relatively modest amount of gold being held in custody as requested for seven years.  Apparently it has prior commitments.

 

There is some seriously weird shit going on in the silver market.   People keep connecting the dots, but no one really has the true picture.  And that is a big strike against the US markets.   You would have to be almost a fool to have any confidence in them and their 'price discovery.' 

The gold and silver story is one of the biggest developments in international monetary relationships in almost forty years, and the whole thing is going on virtually unremarked, unaudited, and unexplained.   It seems like an absolutely lame-brained, misbegotten, monumental government policy error, to try and rig the gold price against a mountain of paper.  And the wiseguys and Wall Street took the baton and ran with it, stuffing their own pockets, and getting themselves and their cohorts stuck in it rather deeply.

Sometimes one might wonder if this hasn't become one of the biggest, Goldfinger-sized, insider trades in history.  You don't need to contaminate the Western gold reserves.  All you need to do is to stealthily hypothecate them to take them out of play.  Poof.  

 

How would you like to be on the really right side of that trade, supply wise?   And how would you like to be holding the bag, on the wrong side?  

 

Never waste a crisis. Especially when you are looting a country.

 

It is hard to fully know anything about the markets in the US because they are so often given to hidden trades and misdirecting statistics.  And this is just the way the powers that be like it.

What could possibly go wrong?

 

Related:  China and the Goldfinger Syndrome

China Should Sell US Treasuries When the Market Is Strong (Like Now) and Diversify Its Reserves

If the Treasury market is robust, as it is now, China might be able to sell its Treasuries without disrupting the market, but it would also then have to sell dollars to diversify into other assets in constructing a portfolio. This might show up in the value of the dollar if not in the bonds.

I wonder how much of that BIS / IMF gold is being diverted to China in private sales in order to allow confidence to remain high in the fiat, and to not disrupt the public markets with large price fluctuations. The US banking system has a significant risk exposure to the gold and silver markets through a few of its banks who are leverage short to the hilt.

This same story prompted Max Keiser to write the following in Game Theory and Gold: Countdown to Meltup

"Soon enough, a G20 nation will announce a full or partial gold backed currency forcing every other country to either reply with their own gold backed currency – or equivalence – or risk 100% capital flight."

Reuters
China should cut U.S. Treasury holdings: economist
by Langi Chiang and Alan Wheatley
BEIJING Sun Jul 18, 2010 9:24pm EDT

(Reuters) - China should cut its holdings of U.S. Treasury securities when market demand is strong, a prominent economist said in remarks published on Monday.

Beijing reduced its Treasury holdings in May by $32.5 billion to $867.7 billion, but it actually bought a net $3 billion in long-term Treasuries and remained the largest single holder of U.S. government debt, the Treasury reported on Friday.

Yu Yongding, a former academic adviser to the central bank and now a professor with the Chinese Academy of Social Sciences, said Beijing should invest in assets denominated in other currencies as well as other financial instruments and real goods.

"Although assets in other currencies and forms are not an ideal replacement for U.S. Treasury bonds, diversification should be a basic principle," Yu wrote in the China Securities Journal.

"When demand for U.S. Treasury securities is strong, it's a rare opportunity for us to gradually pull back. That way, it will not have a big impact on prices and China will not suffer too much," he said.

Zhang Monan, a researcher with the State Information Center, a think tank under the powerful National Development and Reform Commission, told the paper that China should invest more of its $2.5 trillion of foreign exchange reserves, the world's largest stockpile, in hard assets such as gold.

China Said to Purchase Remainder of IMF Gold Sale

This is being reported by Finmarket, a Russian news agency.

I would like this to be confirmed by an official Chinese news agency.

There are recent stories to the contrary from the region: IMF Purchases Not Feasible for China Says China Gold Association The CGA thinks it is more appropriate for China to buy actual foreign mining properties rather than refined bullion, except of course from local sources I'm sure.

I think it is highly unlikely that China would pre-announce any deal or their intentions until the price was firmly set. They are not like the Bank of England which announces its intentions first, and then works against itself in the market.

Having said that, this is credible story, because the Chinese Central Bank is a known buyer of gold, from a variety of sources both foreign and domestic. Further, they were said to very disappointed that India was able to purchase the entire 200 tons initially offered by the IMF at a private pricing of $1050 per ounce.

China would like to increase gold as a percentage of their official reserves closer to the international average which is about 10 percent. Right now their holdings are only 1.2% as I recall.

The bullion banks can use paper gold to manipulate pricing around key events like this week's options expiration in the short term. They are powerful, and have many friends, their demimonde, who will help them to spin the facts, place opinion pieces, and resurrect old studies, to convince a gullible public once again that their promises are good, that their paper riches are wealth. This is the essence of the shaping of public opinion, the hidden persuaders, the not always subtle propaganda campaigns that so often pass for news these days.

But the international currency regime is changing, and the developing countries are choosing to protect their reserves in traditional ways. For the first time in over twenty years the central banks have become net buyers of gold.

The wealthy are buying physical silver and gold in anticipation of a dislocation in the structure of the existing international currency regime, no matter what they might say publicly to reassure the markets. This we know. Whether this is the most prudent thing to have done only time will tell, since there are a range of possible outcomes, and probabilities. But change is in the wind; the time of reckoning approaches and the accounts will be tallied and settled.

Eventually the price manipulators may not be able deliver what they have already sold, and will face a default. As they have done so many times in the past, they will obtain some relief from the exchanges, which they virtually control, in the form of a paper settlement. If necessary, they will ask for a bailout from their friends in the government, at your expense if you are holding their paper.

Then we will see who believes in freedom and fair markets, and who stands for tyranny, for whatever reasons, whenever it suits their needs.

Pravda
China To Purchase Half of IMF's Gold
25.02.2010

China has confirmed the intention to purchase 191.3 tons of gold from the International Monetary Fund at an open auction, Finmarket news agency said.

World central banks started to increase their gold reserves after prices on gold began to climb in 2001. The IMF sells gold within the scope of a program to diversify sources of income and achieve an increase in lending.

The IMF announced an intention to sell 403.3 tons of gold in accordance with the adequate decision made by the board of directors of the fund in September of 2009. India, Mauritius and Sri Lanka purchased about 212 tons of the amount at the end of 2009. India purchased most – 200 tons.

China’s interest in international trade is connected with the development of the nation’s economy, as well as with the growing consumer demand in the country.

“Chinese officials have confirmed previous announcements from IMF experts and said that the purchasing of 191 tons of gold would not exert negative influence on the world market. China is interested in the development of the domestic consumer market,” the agency reports...

Of Bubbles and Busts: Which Way for China?

"Mischief springs from the power which the monied interest derives from a paper currency which they are able to control, and from the multitude of corporations with exclusive privileges...which are employed for their benefit." Andrew Jackson

While the crowd has been chortling over the anticipated decline and fall of the American Empire, they may also be overlooking the dangerously unstable bubble in China, and the implications for that phenomenon when the global economy shifts again.

There has been little doubt in our minds for a long time that China was in an impressive growth cycle that was fueled by overly cheap money and a spectacular equity bubble. This is why we posted that documentary about the Crash of 1929 yesterday, in commemoration of the 80th anniversary of Black Thursday tomorrow.

The collapse of bubbles will not be in the US alone, and the description and atmosphere as described in that film sounds much more like China today than it does the US.

The reasoning behind this is fairly straightforward.

It may be hard to remember from the current lofty heights of the 'China miracle' but their economy was a train wreck in the latter part of the 20th century. Prior to 1980 the state owned People's Bank controlled all the financial resources of the command driven economy. The government created State Chartered Banks (SCB's) in the 1980's, but their business activities were still driven by state policy initiatives, and they quickly became burdened by bad debts.

A speculative push and some tax breaks for foreign direct investment helped to further distort the economy, which led to a severe domestic slump, with banks burdened by Non-Performing Loans. But it was still a centralized economic regime, with a reminder served by the brutal suppression of the student demonstrations in Tiananmen Square in 1989.

In 1994 China tried to cure the serious problems in their domestic economy by devaluing the yuan from 5 to 8.3 to the US dollar in order to facilitate an export driven recovery. That is a 40% devaluation! All your costs were just marked down 40% relative to the competition.

China was able to make key investments in the 1996 Democratic party campaign, and Bill Clinton championed China's favored nation status in 1998, smoothing the way for China's admission into the World Trade Organization in 2000, while still maintaining a deeply devalued currency that was 'pegged' to the US dollar.

As a general note, a country does not engage in unrestricted trade with another country that maintains a currency peg after a devaluation, unless there is some significant ulterior motive. The rational economic response is to first maintain trade tariffs to control the flow of goods and the de facto subsidies and barriers imposed by an artificially manipulated currency. Whenever anyone says that a currency that is 'pegged' and subject to tight exchange controls is not manipulated, except in highly unusual circumstances such as a gold standard, the people in the room just should laugh them on their way out the door.

Pegging the yuan to the dollar helped to encourage foreign direct investment, and helped to stabilize the artificially low prices that US importers could achieve, most notably the Arkansas based WalMart.

Those are the roots of the China bubble: cheap money. It used to be said that the Japan Miracle was a result of their real estate price explosion, the 'monetization of the land.'

 This is a bit of an oversimplification since was a bubble fueled by government industrial policy known as mercantilism. But using this analogy, China was monetizing the cheap labor of its people, as a means to provide cheap goods to the West, and allow business to erode the wage gains which labor had achieved through the worker's union movements of 1930 to 1970. And if one looks at the progress of the US median wage from 1980 to 2009, it worked. The US middle class is flat on its back.

All that history aside, what is going to happen now with China? It was important to take some time to establish the roots of its current bubble, because people have become wide-eyed and accepting of the miracle. Yes, cheap labor helps, but there are plenty of countries around the world that have cheap labor. It tends to get less cheap when the country develops, and when the domestic economy and education and infrastructure improves, while the government can continue to provide subsidies via tax breaks and cheap currency and subsidized debt from banks that are still controlled by the State.

The trade surpluses that have created China's enormous two trillion dollar reserves are a direct result and indicator of the China bubble formulated by Western banks and a domestic government made increasingly nervous by popular unrest due to their economic blundering. Those surpluses in turn have fueled a monumental asset bubble in China that they must handle with care.

The China miracle is a new paradigm in the same way that the tech bubble introduced a new era of permanent prosperity in the US in 2000, and trading margin created a vibrant US economy in 1929. There are many true believers in this miracle, most notably Jimmy Rogers, but that does not mean it is not simply what it is: a bubble created by monetary and policy manipulation.

China is faced with a period of transition. It must move from a export economy to a more balanced domestic consumption economy. This will raise living standards and education levels, and disposable incomes of its people. If a ruling party is an oligarchy, whatever political label one wishes to attach to it, then they are often jealous and insecure of their power base, and anxious about losing control.

If there is a continuing collapse in trade, and the world economy, the theory of decoupling promoted by analysts like Peter Schiff appears to be exceptionally unlikely, unless China can make the transition to either a regional predatory power or more domestically self sufficient.

China can do this, but it is quite important to remember that they do not have market capitalism at their backs and a history of well regulated banks and markets to help them allocate their new found riches in productive, non-corrupt ways. The China miracle is highly dependent on Western multinationals.

In some dimensions, China is more like the US in 1929 than the US itself resembles that paradigm today. This would imply that China is more likely to experience the kind of devastating crash and long economic Depression if world trade collapses.

As you may recall, the US was a heavy net exporter and an economic miracle itself in the 1920s having largely escaped the economic devastation of the first World War.

Perhaps this is a long way of saying that the outcome for China is hardly pre-determined, but it is not nearly so rosy as the believers in the miracle might think. They will have a choice, but that choice is going to lead them to a crossroads quickly, between becoming a free nation with a burgeoning middle class that is increasingly free to make its own choices, or a military dictatorship that seeks to establish client states to provide raw materials and receive its manufactured goods in return.

We should expect the 'One World Government' crowd to make another play when things get particularly bad. Never waste a crisis. The oligarchies do not particularly care whether your flag is red, yellow, or red, white and blue, as long as they are in control. Early on Bill Gates went to China, and upon his return said, "This is my idea of capitalism." The China Bubble and the Convergence of Oligarchies

So, in summary, there is a great deal of facade around the China miracle that is of recent and somewhat shaky construction than most people realize. The Chinese economy is still highly artificial and centrally controlled, with enormous rot underneath that shiny facade in the form of bad debts, malinvestment and over capacity in some areas with insufficient development in others.

China will continue on, as well as the US. The question is really about how and what they will become, and what investment opportunities and perils they represent to the individual. Will the yuan appreciate if the economy collapses into a nasty deflation, as the deflationary theorists think happens when a currency credit bubble breaks?

Oh, if only life were that simple and linear. The strength of a currency can fluctuate short term in response to temporary contractions and squeezes, as the US dollar had done in reaction to the eurodollar short squeeze caused by the collapse of dollar securitized debt assets and some remarkably bad risk management practices by the large European banks.

At the end of the day, a currency is going to be supported by the underlying value of what it represents, because unless it is specie, that is all it represents. And in many ways this is one of the most quiet, almost hidden reasons for the rush to commodities and the bull market in gold. Investors around the world are running from bubbles and monetary manipulation, and seeking safer harbors in those things that have undeniable value and usefulness, or have stood the test of time as nations and currencies have risen and fallen.

Empires may dwindle, but all bubbles collapse, and sometimes spectacularly.

China Seeks to Lessen Its Reliance on US$ Through Aggressive Acquisition of Real Assets

“Everyone is saying we should go to the western markets to scoop up [underpriced assets],” said Chen Yuan. “I think we should not go to America’s Wall Street, but should look more to places with natural and energy resources.”

Financial Times
China to deploy foreign reserves
By Jamil Anderlini in Beijing
July 21 2009 19:09

Beijing will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies, Wen Jiabao, the country’s premier, said in comments published on Tuesday.

“We should hasten the implementation of our ‘going out’ strategy and combine the utilisation of foreign exchange reserves with the ‘going out’ of our enterprises,” he told Chinese diplomats late on Monday.

Mr. Wen said Beijing also wanted Chinese companies to increase its share of global exports.

The “going out” strategy is a slogan for encouraging investment and acquisitions abroad, particularly by big state-owned industrial groups such as PetroChina, Chinalco, China Telecom and Bank of China.

Qu Hongbin, chief China economist at HSBC, said: “This is the first time we have heard an official articulation of this policy ... to directly support corporations to buy offshore assets.”

China’s outbound non-financial direct investment rose to $40.7bn last year from just $143m in 2002.

Mr Wen did not elaborate on how much of the $2,132bn of reserves would be channelled to Chinese enterprises but Mr Qu said this was part of a strategy to reduce its reliance on the US dollar as a reserve currency.

“This is reserve diversification in a broader sense. Instead of accumulating foreign exchange reserves and short-term financial assets, the government wants the nation to accumulate more long-term corporate real assets.”

State-owned groups, particularly in the oil and natural resources sectors, have stepped up their hunt for overseas companies and assets on sale because of the global crisis.

China Investment Corp, the $200bn sovereign wealth fund, has been buying stakes in overseas resources companies and has taken a 1.1 per cent stake in Diageo, the British distiller.

In an interview published in state-controlled media, the chairman of China Development Bank said Chinese outbound investment would accelerate but should focus on resource-rich developing economies.

“Everyone is saying we should go to the western markets to scoop up [underpriced assets],” said Chen Yuan. “I think we should not go to America’s Wall Street, but should look more to places with natural and energy resources.”

China Admits to Significantly Building Its Gold Reserves

Ben had suspected they were cheating when he found gold dust on their collar...

Financial Post
China admits to building up stockpile of gold
Alfred Cang and Tom Miles, Reuters
Friday, April 24, 2009

SHANGHAI/BEIJING - China revealed on Friday that it had secretly raised its gold reserves by three-quarters since 2003, increasing its holdings to 1,054 tonnes - or a pot worth about US$30.9-billion - and confirming years of speculation it had been buying.

Hu Xiaolian, head of the State Administration of Foreign Exchange, told Xinhua news agency in an interview that the country's reserves had risen by 454 tonnes from 600 tonnes since 2003, when China last adjusted its state gold reserves figure.

The confirmation of its surreptitious stockpiling is likely to fuel market talk about Beijing's ability to buy secretly and its ambitions for spending its nearly US$2-trillion pile of savings. And not just in gold: copper and other metals markets are booming thanks to China's barely-visible hand.

Speculation has gathered speed over the last year, since the tumbling dollar has threatened to weaken China's buying power - and give it yet more reason to diversify into gold, oil and metals.

Gold prices jumped on the news of Chinese buying and were up more than 1% on the day at US$912.05 an ounce at 0715 GMT. By a Reuters calculation, China's holding of gold would be worth around US$30.9-billion at current prices.

That accounts for only about 1.6% of China's total foreign exchange holdings and is little more than one-tenth of the value of the U.S. gold reserve, the world's biggest. It also means gold has slipped as a share of China's total reserves from about 2%, based on end-2003 prices.

Only six countries hold more than 1,000 tonnes, and China is ranked fifth, having leap-frogged Switzerland, Japan and the Netherlands with its announcement.

However, the International Monetary Fund and the SPDR Gold Trust exchange traded fund are even bigger, leaving China with the world's seventh-biggest pot of gold.

Several gold market participants said they thought China had bought on the international market, helping to absorb hundreds of tonnes sold off by central banks and the International Monetary Fund in recent years.

"China has been buying via government channels from South Africa, Russia and South America," said Ellison Chu, director of precious metals at Standard Bank in Hong Kong.

But Hu said the increase in China's stocks was achieved by buying on the domestic market and from domestic producers.

China is the world's largest gold producer and does not permit exports of gold ingots, only jewellery, leaving plentiful supplies for the domestic market.

China produced 282 tonnes of gold last year, meaning the state bought around one quarter of domestic production, assuming 454 tonnes increase in state purchases were spread out over the six years since China last reported a change in its holdings.

Despite the rumours, buying by the state was partially obscured by soaring demand for gold as an investment, especially after the bursting of the Shanghai stock market bubble last year.

Investment demand in China rose to 68.9 tonnes from 25.6 tonnes in 2007. But that was still less than one third of retail demand in India, where total bullion consumption topped 660 tonnes last year.

Hu said China recently reported the change in its gold holdings to the International Monetary Fund and would include the latest change in central bank reports and balance of payment statistics.

She did not say when China notified the IMF.

Although gold rose after Hu's comments were published, the price move was not a huge one for the highly liquid market. Prices had jumped by US$13 in the space of an hour on Thursday.

Gold market participants said the news signalled likely further buying by China.

"The comments indicate that China will buy more gold as reserve to improve its foreign reserve portfolio. This is a trend," said Yao Haiqiao, president of Longgold Asset Management.

Hou Huimin, vice general secretary of the China Gold Association, said China should build its reserves to 5,000 tonnes.

"It's not a matter of a few hundred, or 1,000 tonnes. China should hold more because of its new international status, and because of the financial crisis," he said.

"The financial crisis means the U.S. dollar value is changing fast, and it may retreat from being the international reserve currency. If that happens, whoever holds gold will be at an advantage."
The European Central Bank recommends its member banks hold 15% of their reserves in gold, but among Asian nations the percentage is far smaller, said Albert Cheng, World Gold Council managing director for the far east.