LIVE Gold Prices $  | E-Mail Subscriptions | Update GoldSeek | GoldSeek Radio 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page >> News >> Story  Disclaimer 
Latest Headlines to Launch New Website

Is Gold Price Action Warning Of Imminent Monetary Collapse Part 2?
By: Hubert Moolman

Gold and Silver Are Just Getting Started
By: Frank Holmes, US Funds

Silver Makes High Wave Candle at Target – Here’s What to Expect…
By: Clive Maund

Gold Blows Through Upside Resistance - The Chase Is On
By: Avi Gilburt

U.S. Mint To Reduce Gold & Silver Eagle Production Over The Next 12-18 Months
By: Steve St. Angelo, SRSrocco Report

Gold's sharp rise throws Financial Times into an erroneous sulk
By: Chris Powell, GATA

Precious Metals Update Video: Gold's unusual strength
By: Ira Epstein

Asian Metals Market Update: July-29-2020
By: Chintan Karnani, Insignia Consultants

Gold's rise is a 'mystery' because journalism always fails to pursue it
By: Chris Powell, GATA


GoldSeek Web

Does China Want a Lower Gold Price?

-- Posted Friday, 12 February 2010 | | Source:

By: Justice Litle, Editorial Director, Taipan Publishing Group

To the degree that the gold price falls (and the dollar rises), we are witnessing a giant geopolitical chess game in progress.

As you have no doubt heard, Beijing is sitting on something like $2 trillion in excess reserves. It’s actually more than that. According to Michael Pettit, a noted in-country China watcher, the figure is “pretty close to $3 trillion” depending on how you account for it.

This massive sum is no guarantee against a China market crash. Pettit goes on to point out that China’s huge reserves amount to “5-6% of global domestic product.” This is the same rough percentage as the total central bank reserves accumulated by the United States in the 1920s.

It was fashionable to sweat the hoard of U.S. reserves back then, just as it is fashionable to sweat China’s hoard now. In the late ‘20s, John Maynard Keynes spoke of “all the bullion in the world” piling up in America’s coffers. And yet, despite all that backstopped loot, 1929 still happened. The 1930s still happened.

More evidence that even a rich-as-Croesus central bank can lose control, perhaps... or never had true control in the first place. This makes sense when you think about the monetary “pipes” analogy we used just recently in these pages. It’s no easy to trick to pump a vast quantity of cash into the system without seeing it pool stagnantly – or making the boiler explode. Bernanke and crew are like plumbers wearing oven mitts. Are the Fed’s Beijing counterparts really that much smarter?

Of Gold and the Dollar

But anyhow, moving on to today’s inquiry: Does China want a lower gold price?

Chart: Gold Futures, Weekly

In the long term, almost certainly not. But in the short term, maybe so. Consider the following:

  • Via its mountain of excess reserves, China has the biggest “long dollar” trade on the planet.
  • China hopes to build a far larger “long gold” position than it has right now.
  • When building a long-term position, lower buy-in prices are preferable to higher.

On balance, a strengthening $USD is a mixed bag for China. The stronger the greenback gets, for one, the more that U.S. politicians squawk. (American exporters of manufactured goods want a weak currency, not a strong one, and they see China as “cheating” by holding their currency down to spur exports. This creates a natural correlation between a rising dollar and rising trade tensions.)

A firmer buck is a good thing for China, though, in that the dragon has such a huge pile of them to dispose of, i.e. to exchange for more useful assets. When the dollar gets stronger, all kinds of things get cheaper in relative terms. Like South American farmland, for instance... or metal mines in Africa... or coal and LNG from Australia... or gold.

The Long-Run Perspective

In the long run, China craves power (or at least the mandarins who run the place do). Economic power, financial power, military power, you name it.

In getting from here to there – from a world where America is top of the heap to a world where China is – China will have to do a few key things to see its geopolitical ambitions met. It will have to dig out from under a mountain of paper dollars. And it will arguably have to build up a massive stash of gold, much bigger than the one it has now.

The strategic nature of this endeavor creates some odd incentives in the short term. Think of two large investors: one who is trying to quietly buy up the shares of a small public company, and another who is trying to get rid of a massive stake.

Gold is like the small public company in this analogy. The total “float” of gold available for purchase is tiny – a few trillion dollars’ worth at the maximum. (Much of the world’s gold is in private hands and not for sale.) China is like the large investor trying to quietly buy up shares.

Given the intimate knowledge of its own long-run plans, China likely wants to exchange dollars for gold at the most favorable price possible – which, here and now, means a lower gold price. This is no different than a large investor wanting to get the best average cost on his position.

China is like the other large investor – the one who wants to get shed of a massive stake – in terms of its divesting its mountain of dollars. In this case, it is a higher price (i.e. stronger dollar value) that is desirable, as it means a better rate of exchange on greenbacks going out the door.

Playing the Game

This is why, your editor would argue, China is predisposed to a lower near-term gold price, not a higher one. As a large buyer with a very long-term outlook, Beijing wants to get the best prices it can... both on the dollars it sends out and the metal it takes in.

This is also why, from an investment standpoint, your editor is not perturbed by a near-term weakness in gold. To the degree that the gold price falls (and the dollar rises), we are witnessing a giant geopolitical chess game in progress. The endgame, when it comes, will look very different.

Justice Litle, Editorial Director, Taipan Publishing Group
-- Posted Friday, 12 February 2010 | Digg This Article | Source:


Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to >> Story

E-mail Page  | Print  | Disclaimer 

© 1995 - 2019 Supports

©, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer


The views contained here may not represent the views of, Gold Seek LLC, its affiliates or advertisers., Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of, Gold Seek LLC, is strictly prohibited. In no event shall, Gold Seek LLC or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.