"He who has the gold, makes the rules"

 

That's a very old saw, a variation on the Biblical Golden Rule that doesn't exactly square with what Jesus taught.  It seems China may now be in a position to do exactly that.

If you thought the West was unprepared for inflation – or indeed for Russia – wait and see just how unprepared it is for this bombshell.

This is the biggest story in world finance, and yet nobody, bar your intrepid blogger, is reporting on it.

For those without the attention spans to read all the way to the end, let’s cut to the chase and get the main point out upfront: China has more gold than the United States.

. . .

... my argument is that China has much more gold than it says it does ... Since 2000, China has mined roughly 6,830 tonnes. Over half of Chinese gold production is state-owned – the China National Gold Group Corporation alone accounts for 20%. And China keeps the gold it mines – the export of domestic mine production is not allowed.

I say that number again: 6,830 tonnes. Already that official 1,948 figure looks very dubious. 

. . .

Second, there is the fact that, as well as being the biggest producer, China is the world’s biggest importer. Gold imports via Switzerland and Dubai are not always declared, but we do know that via Hong Kong alone, over 6,700 tonnes have entered the country since 2000. 

. . .

Cobble it all together – cumulative production, imports and existing stock – and you arrive at a figure not far off 31,000 tonnes. 

I’ve spoken to some of the world’s top analysts – Ross Norman, Bron Suchecki and Koos Jansen – and they all arrive at similar estimates. Alasdair McLeod of Goldmoney thinks it is higher still. 

. . .

How much of this gold is state owned? Norman guesses 50%; Suchecki, formerly of the Perth Mint, says 55%.

At 50%, the implication is that China owns over 15,000 tonnes – closing in on double the US.

“Chinese Central Bank gold holdings have apparently been entirely unchanged since mid-2019 at 1,948 tonnes,” Ross Norman tells me. “But few of us believe that. Put an additional zero on the end (19,480 tonnes) and I should not be surprised if that is not much closer to their official holdings”.

Alasdair McLeod goes one stage further. “The PRC probably has as much as 30,000 tonnes hidden in various accounts, but not declared as official reserves”.

. . .

If China decides to weaponise money, as the US has done, all it has to do is declare its gold holdings, perhaps even partially back the yuan with them. Talk was, at one stage, its central bank digital currency (CBDC) would be partially gold backed.

Unbacked Western money risks losing a great deal of its purchasing power in such an event. To back Western fiat even partially with gold would mean a dramatic upwards revaluation of gold – into the tens of thousands.

But that is the card China now has with its 20 years of relentless accumulation. He who owns the gold, makes the rules.

There's more at the link.

The USA has been printing dollars - or, rather, electronically generating them through the Federal Reserve - like there's no tomorrow.  80% of all US dollars in existence have been printed in just the last two years.  This has produced rampant inflation, despite official efforts to obfuscate the real rate of inflation through mathematical manipulation.  There are no hard assets backing up those dollars - they're backed only by the "full faith and credit" of the United States.  That faith and credit is looking increasingly threadbare these days.

China, on the other hand, may now be in a position where it could come out of the financial closet and declare that its currency, the renminbi, is now backed by gold, either fully or partially.  That would instantly provide a solid foundation for its value on world markets.  I daresay it would immediately become a de facto standard for international trade, because buyers and sellers would have at least some security that they weren't just dealing in binary zeros and ones in a computer, or pieces of paper that might be as worthless as the ashes they'd make in a fire.  The only way the US dollar could compete would be to become hard-asset-backed itself - and there isn't enough gold production in the world to allow us to build up our reserves rapidly.  It'd take decades, not years;  and that's assuming that gold producers would be willing to accept dollars in exchange for their gold.  If I were a gold producer, I wouldn't.

Nations can be defeated in many ways - not just militarily.  If the report above is correct, China may already be far advanced down the road to economic victory in this day and age.

Peter