Wondering why gold at $1850 is cheap, or why gold at double that price will also be cheap, or frankly at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar's reserve status. Putting that into dollar terms is, therefore, impractical at best, and illogical at worst. We have a suspicion that the following cable from the US embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24 karat pool. The only thing that matters from China's perspective is that "suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB." Now, what would happen if mutual and pension funds finally comprehend they are massively underinvested in the one asset which China is without a trace of doubt massively accumulating behind the scenes is nothing short of a worldwide scramble, not so much for paper, but every last ounce of physical gold.
From Zweo Hedge tody 9/2/11
"I really don't want to read anything this village idiot has to say. Adding to ignore list."
Doesn't this tell you all you need to know??
The ghetto dick-sukkers want you to lose 65% a year in ZSL, and then they advise you to turn "bottoms up" to be raped and stolen from.
This is not what I'm going to do, is it what YOU are going to do??
My advice is, IGNORE THE DIPSCHITTS WHO SAY YOU HAVE TO SURRENDER!!!
You goldbugs are about to be turned into goldbugettes. Watch the traders turn their PMs into cash as the ponzi is exposed and the blood drains from the world's face as it realizes Europe and the rest of the world are dead broke. Gold and silver will plunge and create a new class of bagholders. Panic will set in and my ZSL and DZZ fly, and numbnut PM fanatics learn the lesson they should have learned from history.
You have been warned over and over again.
Some may see the moves of the small countries to be consistent with the political unpopularity of the nations involved. Some may look at the larger countries doing this as simply diversifying their reserves. From a prudent, responsible aspect such moves ensure a good supply of gold into reserves at market prices without causing the gold price to react to every purchase when discovered. The net effect is simply to lower the volume of supplies to the world market. Please note too that the four gold producing nations we have mentioned are seeing a growth in their production on an annual basis. Many other producers are seeing their gold production decline. This must result in the percentage of gold production going straight into a nation's reserves rising while the amount available to growing demand is declining.
Imagine if Australia or South Africa followed suit. With the price of gold rising and the value of the U.S. dollar falling, it makes good financial sense to hold onto the gold being produced locally. Imagine if Britain had not sold its gold at the lowest price seen in nearly 35 years [$275] and held onto it until now. The six-fold rise in its value would be a welcome development in these darkening economic days.
It's getting increasingly difficult to give reasons why gold-producing nations should not retain their locally-produced gold and even more difficult to explain why they should sell that gold for U.S. dollars.
Conditions Compel Leading Nations to Follow
Will other nations follow suit? We think that they will, but would hesitate to say when or who. Central Bankers feel more advantage to paper money as do politicians. Gold comes with a monetary discipline that is anathema to them. But we are sure that where a central banker finds his nation dependent on the hard currencies of the world, the temptation may prove far too much.
But even the U.S. and Canada –should their currencies lose importance and position in the global economy—will no doubt follow suit. When? Certainly the tipping point will be when the Chinese Yuan ascends the stage as a global reserve currency or when oil producers accept most currencies in payment of their oil. Or it may be when the stimulant of money creation becomes too much for the surplus nations to accept. We are closer than you think.
Governments Buying Gold
By Julian D.W. Phillips
Sep 6 2011 9:19AM
Venezuelan gold mining companies had until recently been forced to sell 50% their gold production to the government for their reserves. This was increased last month to 100%. It accompanied President Chavez's nationalization of the mining industry. This lays the country open to the seizure of foreign-based assets belonging to Venezuela, including all its gold. To guard against this Chavez has ordered that all the country’s gold held in foreign vaults be repatriated back to the country. The tonnage involved is 365 tonnes. This is a huge amount. While it seems political opportunism guided the decision, it was an excellent investment move. In the ground inside Venezuela sits around 1,000 or more tonnes of gold, which over time will take Venezuela's gold reserves above those of Switzerland, once it is mined.
Other Countries Following
This is a small country, whose exports are 95% oil. It can sell these to any nation including China, ignoring any Western consequences. At the same time it is switching out of the euro, pound and the U.S. dollar into the BRIC nation's assets. In doing so it is cutting itself off from a decaying flat growth, debt-bound developed world and investing in growth and gold. This leaves the country’s reserves a growing portfolio, dependent for its cash flow on the evergreen cash cow, oil. Small countries may be seeing the wisdom of Venezuela's reserves. They may be tempted to follow that example.
We said this in one of our daily reports…
* Kazakhstan, a relatively small producer, announced that its own local gold production would now be bought by the government for its gold reserves.
* We have long believed that China, to a greater or lesser extent, has been doing this for some years now. Its local production is rising by the year and it’s the world's largest gold producer now at well over 300 tonnes.
* Russia has been buying local and foreign production as well for years now.
Taken individually the tonnages being talked of may not individually have a huge effect on the gold price; taken collectively, however, a different story emerges. At this moment in time we are talking of the above countries local production in excess of 550 tonnes in total. When you consider that world gold production is around 3,000 tonnes per annum, 550 tonnes is 18% of annual gold production. Is this the end of the story? Who can tell, but the pattern is tempting to all gold-producing nations when the nature of their reserves is too dependent on the U.S. dollar, a currency in decline.
continued in next post
You sure are on top of the situation, aware of the news, and all!
BRING ON THE HEAVY ARTILLERY AND KILL THE METALS, LITTLE MAN.
No apologies, but a couple, three to five percent won't impress the girls. Get to work and clobber tha_metal_bugs 20% then we'll give you the affirmation you seek that your balls are large!
I am long silver so I like your thinking, however I dont believe that most pension funds are allowed to invest in Gold and Silver. I could be wrong about this but I believe all investment have to hold a certain level of credit rating as close to AAA as posible. Thats why most pensions got burned with fannie and fredie, also why most dow stocks seem to do better during a big sell off. That money has to go somewhere, they cant put it all in cash.
Wondering why gold at $1850 is cheap, or why gold at double that price will also be cheap, or frankly at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar's reserve status.
you are probably one of the most moronic posters on this board. That article was a wikileaks from two years ago. China's gold only accounts for 1.6 percent of its foreign reserves and is 7th in gold holding in the world. The USA is the largest holder of gold in the world.
You sound like one of those PM nutcases sitting in their basements with their bags of rice and hoarding ammunition waiting for the Mad Max end of the world scenario. Got news for ya buddy, if that happens, a whole lot of people are going to come to your basement, take your $hit, and there's nothing you can do about it. You might be able to empty your pistol but when it's empty, you're toast.
"The USA is the largest holder of gold in the world."
Do you mean the largest holder of gold plated tungsten bar look-a-likes?
Thanks for your .GOV giveaway, Mr. paid disinfo agent.
BTW, what you call a Mad Max scenario, most people will call reality in about 2 years. And please tell your friends to come over for the bag of rice. That red beam they will briefly see coming from over the hilltop will introduce them to a 30.06 forehead surprise.
You need a better scriptwriter, Maurice. Try SNL or Chappelle.