ANALYSIS: BORROWING RATES, GOLD & CHINA….Why the West should join up the dots

I draw your attention to this from Lawrie Williams at his never less than entertaining site:

‘The huge level of weekly Shanghai Gold Exchange delivery numbers is becoming something of a repetitive news item and is perhaps losing its impact, but it shouldn’t.  Week 37 (ending September 18th) saw another 63 tonnes delivered out of the Exchange, which makes the year to date total 1,892 tonnes – 281 tonnes more than at end week 37 in the massive 2013 record year for Chinese gold consumption.  If we extrapolate from the year to date figure this would suggest total SGE gold withdrawals for the year would come to an enormous 2,650 tonnes or higher – equivalent to over 80% of the total global supply of new mined goldWith SGE deliveries usually rising late in the year in the long build-up to the Chinese New Year, which falls on February 8thnext year, we certainly shouldn’t discount the likelihood of this level being achieved, or even bettered.  There seems to be no slowdown happening as yet.’

That narrative paints a somewhat different picture to the one we normally get from the SSE Comp. If the Chinese were – in some unfathomable attack of madness – converting the gold into cash and/or foreign exchange in order to stem market falls and Forex outflow respectively – then it would show up. It isn’t doing that: the Chinese are hoarding the stuff.

Come thick thin rain shine up down in out and even boom bust, buying gold has been a steadfast (and often covert) Beijing policy for many years now. Three months ago, China finally confirmed speculation about its gold hoarding by admitting to a near two-thirds jump in its reserves since 2009. April 2009, reserves were 1,054 tonnes. By end June 2015, they were 1,658 tonnes. But at this point we need to define ‘consumption’: if the reserves are 1.7k tonnes (but 2.7k tonnes are being consumed) then who or what are the consumers?

My own feeling is very simple: as always, Beijing is overstating internal jewellery, cultural et al demand to hide exactly how much is being hoarded. Don’t forget The Slog’s widely ridiculed belief that China’s politburo is equally if not more interested in the geopolitical as it is in the economic….and that, when least expected, it may raise rates.

Foresee with me this bullet-point scenario:

  • China decides to stop using up foreign reserves, and let the SSE Comp do what it must, viz, zoom down towards 2,000 and beyond.
  • This panics the Western markets, setting off a chain reaction that causes major bourse collapses and bank failures across the piece.
  • To exacerbate the West’s catastrophe, Beijing raises rates on bonds guaranteed by gold.
  • A megawave of investment floods back into China, which is in turn used to spend on everything from subsidised rents on millions of empty apartments to First World infrastructural development.
  • The EU implodes as investment drains away, and Beijing is left with a carpetbagger landscape on which to cherry-pick all the assets it could ever desire…and create markets wholly dependent on its goodwill. (It is already doing the same thing in Africa).
  • As the US, UK and EU spiral upwards into galloping hyperinflationary stimulation – in an insane attempt to stop deflation – the effect of this on the financially repressed 97% of the citizenry at last becomes enough to create social violence and, ultimately, sovereign insolvency.

At this point, the accepted ‘rules’ of globalist economics no longer apply: China has lost its Western ‘free market consumption’, but is gold-rich enough to feed and house all its citizens…and has the power to force command consumption of Chinese goods upon those sovereigns forced to sell of their key assets to Beijing. (If you find this far-fetched, look at the way UK Chancellor grovels to the Chinese even today before any of this has come to pass).

There is a factor, of course, called nuclear capability that would probably intervene before such a scenario as I describe pans out. That’s a key reality, but it doesn’t negate the point I’m making here: don’t be narrow in your expectation of the future.

Earlier at The Slog: Plodding through the muddied waters of Europe’s migrant reservoir

29 thoughts on “ANALYSIS: BORROWING RATES, GOLD & CHINA….Why the West should join up the dots

  1. Following hot on the heels of Ronnie Pickering’s debut (I really liked the guy), we have ……..

    The video of a mother giving her young teenager the first doses of hormones needed to continue a transgender transformation has gone viral.

    I’m now in my 60s. The nuclear capability no longer sounds as insane as it once did.

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  2. While I love conspiracy theories JW and your one’s a beaut, I reckon if the Chinese do try this the capital control barriers will go up all over the world. As usual the best of plans will result in unintended and unwanted consequences.
    I equate it to launching a nuclear war. So it will only happen through error rather than intent.

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  3. Am not i have already said they are not for turning or amending,seeing the game theory to it conclusion is the only option,they may keep saying are you ready to change & they may even say yes to a certain point,but in the end taking them out of the equation is only good game theory.

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  4. Like Rome the politicians will try and play this confidence trick until the bitter end while trying to hold to their power.
    Sorry to say we will have to crash and burn first before we see any change.
    Then what do we get afterwards, they are leaning towards authoritianism if you ask me. I think it is time for the good men whom are doing nothing now to do something. I have never protested in my life but I feel the time is near where I will crab the hands of my two sons and explain why it’s important to take to the streets and take back our democracy from these crooks. The time is not now, that will come when the citizens feel the pain. Gerald Celente has a saying; when the people are losing and they have nothing else to lose, they lose it.

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  5. There is a temporal detail that has to be cleared up. It is reasonable to assume China had 1600 tonnes of gold in 2008. They report a number every 5 years. No country tells the truth and no law requires they do. No monetary gold transaction ever appears on any public record except by accident. Believe what they say if it makes you sleep. It appears China has purchased similar amounts each year since. This year, 700 tonnes (so far), almost 1/3 the annual mine supply. Gold is manipulated to a lower price to protect every currency, and China uses money selling the bonds from these countries and buy a considerable amount of gold. So does Russia. But its the people of India that have the most gold personally. History lessons don’t come cheap.
    All the nations knew and worshipped Mr. Ponzi intimately long before 2008, and have ever been working to change the outcome regardless of Mr. Einstein’s definition of insanity.
    The saddest part? They think like Ponzi when they print like Weimar.

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  6. Slighty off topic but I’m puzzled why there is no mention that I can find on the BBC website of the docking of the flagship China aircraft carrier at Tartus in Syria presumably in support of the Russian initiative……….

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  7. The EU implodes as investment drains away

    As the US, UK and EU spiral upwards into galloping hyperinflationary stimulation – in an insane attempt to stop deflation

    An economy would implode were it based on spinning plates as one Slogger described it yesterday. The muscle of a country that has learned the lessons of inflation and established extemely strict rules to counter such a happening, would be well placed to avoid such a consequence.

    It is a characteristic of the NordEurozone that they all have strict social and financial regulations, and that the regulations of the rest of the Eurozone largely does not. For all its strengths, I still include France in this; Britain however, lacks just about any regulation of any sensible kind, social or otherwise.

    My point is that the occasion of the EU doing something truly dotty would finally drive the NordEurozone to its final distraction – and the implementation of heretofore covert dealings amongst their members and an immediate and effective withdrawal from the EU.

    An economic entity of this kind would have the strength that financially crippled countries like the US would then lack, for their economic and political malfeasance would have been laid bare once and for all. The NordEurozone would be perfectly placed to deal with Russia for its gas and oil, and with China for its goods. Quite what the Freier Bayrischer Republik (or Königreich?) would do with its stack of BMWs is not clear, but the rich are always rich, whatever the rest of the US population must suffer.

    The moral of this story is not to assume that the Saxons and Scandinavians would act in the same way as the Anglo-Saxons.

    And now, I shall now take my medication, namely: a cup of English tea.

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  8. I stopped watching the BBC for news long ago. If you look at BBC breakfast it looks like the old GMTV crowd have moved there.

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  9. Spot on. I cycled through a village near my Bavarian home a while back and slowly, in convoy, drove through six gorgeous awesome red Ferraris. There’s serious old money down here. So by your analysis we have three groups the EU may split into.

    1. Anglo-Saxony – the UK in other words as an stationary aircraft carrier for the US and its attacks worldwide.
    2. Saxo-Scandinavia – Germany here is very Scandi-influenced – the entire sauna culture down here I can think of being a good example.
    3. France and the Med lands. France is such a top heavy bureaucracy that you cannot survive “officially” you have to live largely “on the black”.

    I must write a book about life in Bayern one day, a kind of Peter Mayle with Bratwurst.

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  10. You also need to consider that China mines nearly 500 tonnes of gold a year. I would be interested to find out much of this goes into the SGE or straight into a vault marked People’s Republic. Vlad brought another 30 tonne last month. Shanghai Co-operation members seem to be buying a lot of physical gold for some strange reason.

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  11. Bratwurst???? Das ist Bayern! Weißwurst!!!!!!!!!!!!!!!

    I’m sure that if you’ve spoken with people in Europe, they’ll wonder at you for suggesting that Britain is part of the EU… many of them don’t realize that it is! Which is why I aree that it is an American satellite state.

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  12. Mind you, on a visit to Straubing, the menu of the Gasthaus ran to four pages of sausages… after three pages of beers.

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  13. The only reason I can imagine for keeping the gold price low is to make the dollar look stronger.

    Not the most sensible of long-term strategies, but that’s America for you.

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  14. “It is a characteristic of the NordEurozone that they all have strict social and financial regulations, and that the regulations of the rest of the Eurozone largely does not. ” Ahh yes lobbying the EU so they keep there pollution tests the same as in the 1970 s . The Greece situation and the VW fiasco have taught us that the Germans play by the same rules as everyone else , namely : they cheat .Monetary rigour and honesty do not necessarily go hand in hand .

    “My point is that the occasion of the EU doing something truly dotty would finally drive the NordEurozone to its final distraction ” .. such as a) Bailing out a Member State who has no chance of ever repaying its’ debts ?
    b) Opening borders so any man and his dog can come into the Eurozone ( in their 100s of 100s since 2000 ) .
    c) Having an unaudited budget in the 100s of millions ??
    Methinks you underestimate the dottiness of the EU , and the tolerance of the Geramns towards it . Angie and co no that the biggest loser in a break-up of the EU will be Deutschland itself . The €Zone is hundreds of extra billions a year to German GDP .

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  15. So let’s have a little think about this, shall we?

    Who has the money to spend on lobbying the EU? I doubt a socially responsible government like Germany would put money that way… but one of their money-grabbing corporations might. (So please do not confuse government and corporation in the NordEurozone! That is a particularly Anglo-Saxon kind of cancer).

    As to your remarks about the dottiness of the EU, work out why they do these things, and the banks that profit from them. And then run it all backwards to the point where Goldman Sachs defrauded both Greece and the EU in one stunningly beautiful sleight of hand.

    Remember this: the EU ain’t there for the benefit of Europeans.

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  16. Ah Straubing…..I lived a year north of there near Weiden. Oberpfalz is kind of the reverse of where I live – actually poor and suffering depopulation, empty and as a result very charming. We visit a village on the Czech border – my MiL was born in a castle up there. I always say you come away from there stuffed with cake and drunk on the hospitality there. Wonderful people up there.

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  17. I’m afraid it wasn’t me, but my understanding of the psychology of those who are attracted to banking would lead me to have posted it if you’d not found it first!

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  18. How is it that poorer people value their guests? It was Munich that truly put me off Germany for a while – until I discovered Baden. Stuttgarters weren’t so friendly either; but Karlsruhe and Freiburg were like a breath of fresh air!

    It must be a bit remote for you up there in the winters, though.

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  19. Gemma you misunderstand – I only lived in Oberpfff for a year. I’m in the rich belt now. yes it is comparatively shit socially as the attitudes here are very arrogant in general.

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