Posted on 07/23/2015 5:20:22 AM PDT by Enlightened1
On Friday, alongside China's announcement that it had bought over 600 tons of gold in "one month", the PBOC released another very important data point: its total foreign exchange reserves, which declined by $17.3 billion to $3,694 billion.
We explained all of his on Friday in "China Dumps Record $143 Billion In US Treasurys In Three Months Via Belgium", and frankly we have been surprised that this extremely important topic has not gotten broader attention.
Then, to our relief, first JPM noticed. This is what Nikolaos Panigirtzoglou, author of Flows and Liquidity had to say on the topic of China's dramatic reserve liquidation
Looking at China more specifically, it appears that, after adjusting for currency changes, Chinese FX reserves were depleted for a fourth straight quarter by around $50bn in Q2. The cumulative reserve depletion between Q3 2014 and Q2 2015 is $160bn after adjusting for currency changes. At the same time, a current account surplus in Q2 combined with a drawdown in reserves suggests that capital outflows from China continued for the fifth straight quarter. Assuming a current account surplus in Q2 of around $92bn, i.e. $16bn higher than in Q1 due to higher merchandise trade surplus, we estimate that around $142bn of capital left China in Q2, similar to the previous quarter.
JPM conclusion is actually quite stunning:
This brings the cumulative capital outflow over the past five quarters to $520bn. Again, we approximate capital flow from the change in FX reserves minus the current account balance for each previous quarter to arrive at this estimate (Figure 2).
(Excerpt) Read more at zerohedge.com ...
China’s debt is actually even worse than ours, something closing in to 200 percent of GDP (I think it may have been 150 or 160, or even 180 percent, I can’t remember the exact number). Of course, the Chinese do not broadcast this. Their collapse is inevitable.
....alongside China’s announcement that it had bought over 600 tons of gold in one month...
What would you rather do? Dump evidence of printed paper debt or buy 600 tons of gold in a month with gold around a low of $1,100 an ounce, or both?
The Chinese are a lot of things, but they aren’t dumb.
If, as I assume, they are selling US bonds purchased when interest rates were higher they are selling them at a premium, and before an increase in US interest rates erode that premium.
China - 1 billion+ people I don’t give a < expletive deleted > about.
So why does the price of gold and silver keep going down?
Gold goes up during war. I find this very interesting since China has been very hawkish around the Pacific. China buying tonnage of Gold. Hmmm
The Chinese aren’t dumb? They build entire ghost cities just to keep their economy going. So how dumb is that?
I had stated many moons ago that I never feared China at all even from a monetary position...the reason being that their infrastructure is so fragile and half-assed along with the fact that the citizens are looked upon as a commodity that has no soul...coupple that with the flight of the young to inner cities and then finding out all that is there are sweatshops and corrupt factory owners who practice slave labor tactics...why do you think they have netting around the perimeter of some tall buildings?...
“The Chinese are a lot of things, but they aren’t dumb”
So all of a sudden our COMMUNIST CENTRAL PLANNERS are smart??
The other poster mentioned the ghost cities they built.
Let them buy ALL the gold and dump ALL the treasuries! When you own all of something it loses ALL its’ importance. And by selling treasuries they take off the table any leverage they have on that too.
And meanwhile, LONG-TERM rates, the ones the Fed can’t control, continue to stay low.
The markets are telling you right now that DEFLATION is more likely than INFLATION. After all those years of hyper-inflated musings over hyperinflation.
Some things are more expensive these days, like food and health care and some things are cheaper, like owning a car that goes 150,000 miles instead of 75,000 or mortgage financing if you get it.
The world did not end in 2008.
This move by the Chinese sounds exactly like a bunch of central planners trying to get too cute with their financial decisions. I wouldn’t touch gold here with a 10-foot pole.
How is it that China buys 600 tons of gold in a month and the price of gold is still going down? I’m not complaining, of course.
Precious metals markets are manipulated. FIAT trading controlled by Goldman.
“So why does the price of gold and silver keep going down?”
Most gold and silver is traded on paper without ever seeing the physical. And like printing money, there appears to be more gold and silver than there really is.
If everybody ran out with their paper gold and silver to claim the physical many of them would be sadly disappointed. On that day, the price will go through the roof.
“So why does the price of gold and silver keep going down?”
Good question.
I’m no expert, but some say it’s a manipulated market, as are stocks and bonds. That is to say, the current world price does not necessarily reflect a true price, if a truly free gold market existed, but rather what the ‘controllers’ want it to be.
How long that can continue is an open question.
I’ll be interested to see what kind of answers you get.
Where did they buy 600 tons of gold from??
It’s just like money. There’s plenty of dollars until a critical mass of people decide that they want those dollars physically in their hands. Then, there’ll be a run on ATM machines.
The government printing presses of late are mostly just zeros added to computer accounts. They aren’t really printing more dollars.
Same with gold. Most good transactions are paper certificates in lieu of gold. That works just fine unless you get a critical mass of people wanting to actually hold their property.
This is why goldbugs believe that gold isn’t gold unless you take possession.
“I’m no expert, but some say it’s a manipulated market, as are stocks and bonds.”
From October 2014 First Trust Research:
As of that day in the PDF the total market capitalization of the world’s stock markets is OVER $60 TRILLION. If you honestly think that is solely manipulative you are living in a dream world.
It is the sum of economic value of the underlying companies as the collective investor world values it. Throw in corporate bonds, municipal bonds, money market accounts, savings bonds, savings accounts, real estate, etc and the number is probably in the $150 trillion range total.
Keep believing it’s all some PLOT . . .
An interesting chart I found about gold usage and ownership:
World Gold Holdings (2011)
Location / Holdings(tonnes) / Share of total
Total 171,300 100%
Jewelery 84,300 49.2%
Investment (bars, coins) 33,000 19.26%
Central banks 29,500 17.2%
Industrial 20,800 12.14%
Unaccounted 3,700 2.2%
HALF of the gold in existence is in JEWELRY.
Keep dreaming that this market is manipulated too.
So are you indirectly saying that buying and having actual possession of easily identifiable gold and silver bullion and old coins is a real good idea at these low prices?
I wonder how much their stock market meltdown has to do with this?
“Where did they buy 600 tons of gold from??”
They bought the production from their own mines.
http://geology.com/minerals/gold/uses-of-gold.shtml
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