Readers of this blog know by now that the goal here is to stay with factual data as much as possible and limit speculation as much as possible. Of course, some analysis and speculation is required to draw conclusions from the facts. This article I am posting today falls in the category of mostly speculation.
So why post it here? That's a good question you should ask of any site as a skeptical reader. I owe you an answer; so here it is. The speculative theory put forward by Chris Powell of GATA in this interview is based on some factual data we can verify. Namely, that last April there was a breakdown in the price of gold that led to a pretty sharp decline that may have bottomed out just below $1200. Once the price of gold fell, it has been widely reported and verified that China has ramped up gold purchases. In 2013 the imports of gold were huge and appear to be continuing in early 2014 despite some rebound in the gold price. So those are facts.
There are really only two possible interpretations of China's gold buying spree once the price drop took place.
Either they were just fortunate and took advantage of much lower prices to build up their gold reserves (and thereby hedge their US dollar and US bond exposure) or they made an arrangement with the US to allow them to manipulate the price of gold lower so they could buy their gold much cheaper. The reason the US might go along with such an arrangement is to keep China from selling off too much of its giant holdings of US debt. A deal like this would allow the US to keep issuing debt (keep the present system going) and would allow China to build up gold reserves to offset any possible loss of value on its US holdings due to the QE policies of the US FED.
In other words, either the sharp gold price drop was just an unplanned market event or due to a planned agreement of some kind to benefit the US and China as gold reserves are rebalanced from West to East.
Obviously, we cannot prove either alternative. So all we can do is observe facts and speculate from there. But I did want to offer this alternative view (speculation) because it is plausible and does at least fit some facts we can observe and verify.
I think the main point to take away from this as it relates to this blog is that one way or another China and BRIC nations have to figure out a way to go forward without being so tied to the US dollar and US bonds. So long as most of their reserves were held in dollars and bonds, they were somewhat trapped into accepting whatever the US FED did with regard to bailouts, QE, stimulus, etc. All these things devalue the US dollar and therefore their US holdings. They really had no choice but to get out from under this trap. Any sane person would do the same thing.
If we tie this all into the other information we have posted here, we can put forward a reasonable overview that fits facts we can observe as follows:
1) The financial crisis of 2007-2008 (and all the FED money creation since to prevent a systemic collapse) illustrated to the rest of the world and especially China that they were too vulnerable to US policies that might devalue their reserves held in US dollars.
2) This caused them to start trying to fix that problem. They are trying within the global system (at the IMF) to get more voting power as one alternative. But that requires US approval which has yet to happen. The US has veto power at the IMF.
3) Since they cannot move forward within the present system (at the IMF) they are forced to go to what I call Plan B. This is where they steadily diversify out of US dollars and bonds by using those to buy up assets around the world (exchange devaluing dollars for tangible assets). As part of this process, they clearly want to sharply boost gold reserves much higher. This not only reduces holdings of fiat reserves, it actually also helps them hedge against fiat holdings as Jim Rickards has pointed out. So they are increasingly less trapped by what the US does.
Whether all this is being done as part of a secret agreement with the US is unknown. But the bottom line is the same either way. They are implementing Plan B even as they try to get more influence at the IMF. They are openly calling for a "new global reserve currency" (not the Yuan). All of these facts are clearly documented here on this blog from highly credible news sources. Just read the earlier posts on this blog if you are a new reader here.
Whether all this leads to some kind of "RESET" is why this blog exists. We are following all this to see where it goes. We can't know the timing, but what we can do is keep informed by following the news and know what to watch for that might indicate major change is imminent. If there is a sudden new overnight systemic crisis, we can't possibly know that in advance. But just knowing that is possible allows someone to make some preparations now if they choose to. If we see anything that hints of that we will post it here.
That is what we will do here for as long as it takes to find out the outcome. We will try to stay on top of all relevant news and post it here because we know many people do not have the time to track all this down. We will try to post what we think are the most credible sources of information. Any extra eyes that forward us links to relevant news is welcome.
We will try to keep speculation to a minimum, but occasionally if we see a plausible speculative theory like this one, we may post it here for consideration.