"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."
- Ludwig von Mises

Thursday, December 2, 2010

Is China Preparing for the Ultimate Fiat Collapse by Grabbing All the Gold It Can?

In a prior post: China Gold demand to likely surpass India in 3-4 years, I speculated:
"China still has the gold bug. Here's an article confirming the widely held view that China is accumulating gold in a manner that does not upset the markets. It is buying from internal production (its own mines), and it has been encouraging its people to buy gold. I call it the unspoken Chinese "get that gold within our borders and we'll figure it out later" gold policy.
Well, from Bloomberg today, emphasis mine:
China Gold Imports Soar Almost Five Fold on Inflation
China’s gold imports jumped almost fivefold in the first 10 months from the entire amount shipped in last year as concern about rising inflation increased its appeal as a store of value, said the Shanghai Gold Exchange.
Imports have gained to 209 metric tons compared with 45 tons for all of 2009, Shen Xiangrong, chairman of the bourse, told a conference in Shanghai today. The country is the world’s largest producer and second-biggest user.
Even the Chinese government is pro-gold accumulation, and is fostering this policy with new rules. The article continues:
Relaxed Rules
China’s plans to relax gold trading rules may boost demand and increase trading volumes on the Shanghai Gold Exchange, the bank said.
Gold imports this year by India have already exceeded 2009 levels as consumers boost jewelry purchases, the World Gold Council said Nov. 17. Imports totaled 624 metric tons by the end of the third quarter, compared with 559 tons in all of 2009, according to the London-based industry group today.
“A possible interest rate hike in China won’t damp Chinese investor interest in gold,” the Shanghai exchange’s Shen said. “Even if China adds 50 basis points, it would still be a negative interest rate environment given inflation is running at more than 4 percent.”
Behind the multi trillion paper currency bank and sovereign bailouts, behind the broken price discovery mechanisms affecting markets around the world that are erroneously telling us that all is well, there lies a quiet but giant race to gold. The unavoidable fiat collapse is accelerating, and so too, is the sovereign race to accumulate gold.


Anonymous said...

I could not go to bed without writing something to your last posts.
First of all I have to say that I am most impressed with your analytical
judgement. I don’t know how many people expect the crash of our monetary system but I definitely don’t expect its survival.
Two years ago (yes, I know, I am a newcomer, a sheeple awaken not long ago) it took me just to see a diagram with the worlds debts as to understand that they can never be paid back. Until the summer of 2009 I thought the decline would be quick, nothing to be done.
By fall 2009 I understood how many mechanisms can still support it! I was aghast when I realized in what for a world we live. Now day by day I learn something new and even if I suspected that most of us knew nothing about history, now I know even better: there is no difference between my knowledge today compared to the volume of knowledge today and that of a peasant in Middle Ages. I feel just as ignorant as they should have felt. I saw Trichet today at the press conference and again I felt as they want me to feel. Insignificant, stupid, not in the know.

Do you believe we might have a WW? Do you see any eugenics intentions in that?
How do you see Trichets action? Is he cautious about the euro as he wants it to survive?
I see the euro as a calamity for Europes people and as a boon for the European multinationals.
How are people doing in Greece? Do they understand what’s happening? Do they look to understand?
I have so many questions, sorry I abuse you asking so much but I have nobody in real life to speak about such things. Life is so difficult to live among people you are divided from by an invisible wall of different interests…
What do you expect to be the trigger?
Chinas inflation getting bigger? Do you think they can contain it?
Europe breaking down when bigger countries are even more affected?
Social unrests in the EU?
The gigantic cross border liabilities of smaller countries? I wonder what goes on in Luxembourg – small country, most of GDP financials.
The Constitutional Court in Germany?
Something unexpected?
After my last years’ experience I am so appalled that they can go on for a longer time than we can resist. I mean resist the psychological warfare, the lack a stability, the tighter noose around our necks in restrictions of freedom. The EU is becoming more and more totalitarian and I can feel that because I have some experience with totalitarian regimes.
Sometimes I wish I could get the blue pill and forget everything. Is it possible to become another person due to the shock of awakening?
I envy you. First because you have no familial constraints. Then because you live within the nature. And then maybe because you might have some kind of protective distance to your surroundings as they are not your homeland. I wish I could live in a place where I had nothing to do with any ugly reality of the modern life.
Please keep posting because I love your reflections and excuse me for my rant which is so much off topics, but I have nothing to add to your thoughts, you seem to confirm my intuition and besides your writings are so crystal clear and beautifully formed. Sigh!

Misthos said...


Thanks for the kind words. Yes, you bring up a lot of issues. I'd like to think that I am humble enough to admit that I, nor anyone else can have all the answers.

I believe the world has reached a point of hypercomplexity that has never existed before - in the way it communicates, it trades, it consumes resources, and how it relies on lightening speed technology for everything from food distribution to global financial transactions.

And so, this complexity hinders what policy planners can accomplish or what you and I can accurately predict on a detailed level. This is what I fear the most: that the global elites are scared to death, they have lost control, that the best they can do is to react as crises arise, and that in the end, conflict, not cooperation will determine some sort of resolution. In such an environment, trust disappears. As goes trust, so too does credit - and hence, my belief that gold will enter the global monetary system in some role.

I do hope we do not experience a world war. But unconventional conflicts I do not rule out. I recall Marc Faber saying that the future conflict will take place in financial centers, water supplies, dirty nukes, etc... Let's hope he's wrong.

The best that can happen is that this great monetary unwind occurs in slow motion. Think of plate tectonics - I believe Jim Rickards used this analogy once. As two plates exert pressure on each other, enormous pressure is stored. This pressure has to ultimately be released. It can be a gradual release, manifested as occasional tremors, or it can be a large release, that occurs with a significant and devastating earthquake.

Government policymakers are trying to make this a gradual unwind, but my doubts on their abilities lie in the fact that private sector oligarchs, if you will, (Bankers, Influential investors, etc...) think of their interests first. Well, you can't always accommodate the interests of the wealthy few, and the interests of the system as a whole. Something's got to give, and a mistake will be made. A tragic one. Keep in mind, geopolitics too plays a role. There are limits to what one nation can do - these limits are the conflicting goals of competing nations. Think of the failures of the G20 meetings - that sort of thing. Crisis management is difficult under such circumstances.

Imagine a fire fighter trying to put out a forest fire encroaching a neighborhood. Before he can turn on the water hose, he has to ask if the millionaire down the street is watering his private golf course. And if he could please turn the water off. The millionaire gets annoyed.

That's the world we live in.