Friday, May 15, 2015

Avery Goodman: The Real Reason China is Buying up the Worlds Gold

A new article by Los Angeles securities attorney Avery Goodman is thought provoking. There is a lot of interest and speculation these days as to why China is buying so much gold. We have covered that topic here quite a bit. In this article Mr. Goodman suggests that China does not intend to back the Yuan with gold. Instead, he says they want to use gold to control the exchange rate between the US dollar and the Yuan. Below are some quotes and then few comments.



  • China's central bank is buying huge quantities of gold.
  • China wants the yuan to become a reserve currency, but does not want a "strong yuan".
  • China wants the leverage to control all currency values, which requires control of the gold market.

"China has spent the last 6 years importing thousands of tons of gold and buying all of its own domestic production. According to Koos Jansen, the China Gold Association (CGA) Yearbook listed net imports in 2013 at 1,524 tonnes, with an additional 428 tonnes from domestic production, a sum total of 1,952 tonnes. In 2014, China imported at least 1,250 tonnes and domestically mined 452 tonnes, for a sum total of 1,702 tonnes. Total imports amounted to more than 410 tonnes in the first two months of 2015 alone, which is a big jump from 2014 demand."

. . . . 

"Bloomberg speculates that China is buying gold because it intends to bolster the acceptability of the Chinese yuan in international commerce. The line of thinking is that large gold holdings make currencies more credible candidates for reserve currency status. Yet, a gold-backed currency is not likely to impress the staunchly anti-gold IMF, or increase the likelihood that the Chinese yuan will be added to SDR. Just the opposite."

. . . .

"In other words, whoever controls the price of gold against their own currency controls the price of gold against any other currency that gold is denominated in. When China increases the number of yuan it takes to purchase one ounce of gold, the dollar will respond by rising in value, even though China will not be pegging its yuan directly against the dollar. The dollar's rise could only be capped by a concerted effort by the USA.
Control over the worldwide currency markets is why China wants to control the gold market."
My added comments:

This is clearly becoming a topic of great interest when we see articles like this showing up all the time in an effort to explain why China is buying so much gold. This article offers a different take on it for readers to consider.

Right now, my own research leads me to believe that China does want to build up its gold reserves in order to impress the IMF and improve the chances for adding the Yuan into the SDR currency basket. Also, I do not find evidence that the IMF is "anti-gold" unless he means "anti gold-standard". If that is what he means when he uses the term anti gold then I do get what he is saying. 

My own research indicates that the IMF and the major western central banks are not "anti-gold" since they own huge gold reserves and have repeatedly made public statements that gold is an important part of their reserves. What they do not want is a return to a gold standard where gold is used to directly back currencies. You could say they are "anti-gold standard" and that would agree with the information I have seen while doing research on for this blog.

I am willing to keep an open mind to any well presented ideas on this topic which is why I posted this article here. If China intends to directly back the Yuan with gold as some believe, we will cover that here if anything supporting that shows up in public media. Again, right now the evidence I see points to China wanting more influence at the IMF and inclusion of the Yuan into the SDR basket.

In time, we will know why China is buying so much gold and it is clearly important to potential monetary system change which is our topic here.

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