China Will Flip The Switch On The Gold Price

[theo]

Lately I've been attempting to identify a realistic scenario where the Dollar collapses. Despite all the debt and QE the U.S. Dollar still seems to be the most trusted currency around. Outside of a Global War or terrorist attack (EMP), its difficult to envision what is going to break that trust in the near term. However, the possibility of China forcing a public gold default on the U.S. discussed in this article seems very realistic to me.


http://seekingalpha.com/article/3026846 ... gold-price

Note: You have to put in an email address and a password to read the full article, but then it lets you right in.

I want to touch on gold real quick. We have a big topic to talk about near the end of the interview. But there have been gold bull rallies that have tried to start, and every time that they have started to get going, the Dow and the general equities have charged forward. I think that that has taken the fuel away from that bull market in gold. Do you think that we need to have stock market weakness, the Dow needs to fall off, or the dollar needs to fall off before gold can re-enter this bull market in earnest?

BH: I do not think you are going to see a bull market in earnest. I really think that you are going to see something akin to a light switch being flipped on or off. I think that switch, basically, is gold supply. I think gold will be marked up and the financial system will go into a seizure once China is not delivered on. China has taken up 80-90% of global production. It has to be coming from somewhere, and that somewhere is not a bottomless pit. Now, when the gold runs out and the Chinese are not delivered upon and they cannot exchange dollars for gold - that is it. That is your light switch.

CK: An example scenario of that, from a public point of view, might be waking up one day and China announcing that they have ended up accumulating ten thousand tons of gold. Is that kind of the idea you have in mind?

BH: You may see a few days of $50 or $100 moves upward, and then all of sudden China comes out. They may or may not say "We have not been delivered on," but I think they could step up and they could pick a number. They could use $2500, $4000, $10000 - who knows? But they could step up and say, "We will rebid $4000 an ounce on any and all gold anyone wants to sell." Now what is the price of gold? What is the new price of gold? It is $4000. It does not matter what Hallmark's fantasy land says it is. The price of gold basically would be what the Chinese say it is

[neilgin1]

that would be true, imo. I've heard figures of 20,000 mt Chinese gold holdings, have you heard similar?

[68Camaro]

I think they will do nothing as long as 1) the dollar is strong and they can still buy PMs and goods from the west with the USD, 2) they still have USD to spend. When the USD crashes and/or they spend most of them, they will then flex their muscle.

Right now they are playing chess - setting up the board. They think in the long-term, decades, and are patient. They will let it play out as long as it is in their favor, and right now it remains in their favor, and they themselves will do nothing overt to upset that.

No one has any idea how much gold the Chinese have. I think 4000 mt is the low end, and something like 15-20,000 at the high end. Most of that difference depends on whether or not they were able to finagle gold out of Ft Knox via third party leases. If Ft Knox is empty, then the Chinese have it all and their total is toward the high end.

[theo]

You also have to decide whether to count the gold owned by Chinese citizens and private concerns. If you do; then 10,000 MT is not unreasonable.

The article goes on to discuss the Asian Infrastructure Investment Bank (AIIG). Its appears to be a Chinese-lead version of the World Bank. Not sure if it will eclipse the WB as the article suggests, but it appears to be off to a good start as Great Britain and Australia are applying to join. The West has used the World Bank to extend its economic and political influence throughout the developing world. China will likely use the AIIG to establish a hegemony in Asia and continue to make inroads in Africa.

[johnbrickner]

The article goes on to discuss the Asian Infrastructure Investment Bank (AIIG). <snip> China will likely use the AIIG to establish a hegemony in Asia and continue to make inroads in Africa.

Emphasis mine.

And eastern Europe, and Europe, and South America, and Central America.