Chinese sales staff walk along an aisle paved with gold bars at a gold exchange house in Kunming, China, Dec. 11, 2012. (STR/AFP/Getty Images)Chinese sales staff walk along an aisle paved with gold bars at a gold exchange house in Kunming, China, Dec. 11, 2012. (STR/AFP/Getty Images)

 

The world is full of golden rules. There is one for every field: ethics, communication, fashion. But there is only one that counts, the golden rule of money: “Who has the gold makes the rules.”

China, it seems, wants to make the rules in the international monetary system, which is why it has been acquiring vast amounts of gold both through private and official channels.

Because of the obscure nature of the Chinese gold market and the reluctance of Chinese officials to show their hand, nobody has been able to accurately calculate how much gold the Chinese have amassed since about 2000, when they began amassing it.

Enter Koos Jansen, an analyst with Singapore bullion dealer Bullion Star. He has studied the Chinese gold market for years and recently came up with an estimate of total Chinese gold holdings: 19,500 metric tons, or 21,495 U.S. tons, at the end of January 2017.

“They have promoted gold ownership as a store of value since at least 2002, but more so when they introduced the ‘storing gold with the people’ concept in 2004,” says Jansen, a campaign encouraging private citizens to buy gold.

Private Hoard

According to Jansen’s estimates, total private holdings, including those of individuals and firms, are 15,500 metric tons. The official reserves of the People’s Bank of China (PBOC) are around 4,000 metric tons.

This would make Chinese the second biggest holders of gold after India, where citizens are estimated to hold 20,000 metric tons of gold in jewelry and other forms. Private sector holdings for the United States are unknown, but the Treasury still holds 8,134 tons in official reserves.

But where did China get all this gold when in the year 2000 it only had 4,000 tons in total?

The first piece of the puzzle is domestic mining.

“In the 1970s when China needed foreign exchange, that’s when they started their mining industry. They were supposed to start exploration and the people were incentivized to mine gold. That’s why there are so many gold mines in China.” He pegs the number at around 600.

Those 600 mines produced 490 tons of gold in 2015, making China the biggest producer ahead of Australia with 300 tons.

Importing Into a Black Hole

The next piece of the puzzle are imports. According to Jansen’s estimates, China imported about 1,300 tons of gold in 2016, mostly through Hong Kong but also directly from Switzerland and the United Kingdom.

Here, Jansen points out a peculiarity regarding Asian buying: “Asian demand is strong when the price goes down. Western demand is strong when the price goes up. In April 2013, the gold price collapsed and a lot of gold was exported from the West to China, mostly from the UK.”

When the gold gets into China, it is then sold through the Shanghai Gold Exchange (SGE), which also handles scrap supply and domestic mining.

Curiously, Jansen points out, none of this supply is going to the central bank but rather to consumers and companies.

“In the domestic market, there are laws and incentives to push supplies through the SGE. Scrap, domestic production, imports, all go through SGE at first. The withdrawals from the exchange are equal to total private gold demand.”

Private demand includes individuals who want to diversify their assets or institutional investors, like pension funds but also the gold sold to jewelry companies for later resale.

“Companies and individuals buy gold for the same reason. Get out of the Renminbi, diversify, protection, etc,” he says.

As for the central bank, Jansen says that their purchases don’t show up in official import statistics and are kept a tight secret.

“The Chinese army even has a special division, I call it the gold army. This gold army can still be active, they can pick it up directly in the UK,” he says. The central bank also uses commercial banks who buy in Switzerland or South Africa and secretly ship the gold to China.

For example, the total gold holdings of the London Bullion Market Association dropped by 2,750 tons from 2011 to 2015 but net exports were only 1,000 tons. Thus, those 1,750 tons are unaccounted for and most likely ended up in official Chinese reserves.

According to Jansen’s contacts at Chinese banks, official holdings are closer to 4,000 tons rather than the published figure of 1839 tons.

What does China need that gold for? “They buy official gold to internationalize the Renminbi. If there are enough reserves behind it, they can make it a credible currency.” He who has the gold makes the rules.

That’s also why China doesn’t allow even one ounce of gold and silver to leave its shores once it enters. “The West has been selling gold into a black hole,” says Jansen.

Read the full article here

Chinese sales staff walk along an aisle paved with gold bars at a gold exchange house in Kunming, China, Dec. 11, 2012. (STR/AFP/Getty Images)Chinese sales staff walk along an aisle paved with gold bars at a gold exchange house in Kunming, China, Dec. 11, 2012. (STR/AFP/Getty Images)

The world is full of golden rules. There is one for every field: ethics, communication, fashion. But there is only one that counts, the golden rule of money: “Who has the gold makes the rules.”

China, it seems, wants to make the rules in the international monetary system, which is why it has been acquiring vast amounts of gold both through private and official channels.

Because of the obscure nature of the Chinese gold market and the reluctance of Chinese officials to show their hand, nobody has been able to accurately calculate how much gold the Chinese have amassed since about 2000, when they began amassing it.

Enter Koos Jansen, an analyst with Singapore bullion dealer Bullion Star. He has studied the Chinese gold market for years and recently came up with an estimate of total Chinese gold holdings: 19,500 metric tons, or 21,495 U.S. tons, at the end of January 2017.

“They have promoted gold ownership as a store of value since at least 2002, but more so when they introduced the ‘storing gold with the people’ concept in 2004,” says Jansen, a campaign encouraging private citizens to buy gold.

Private Hoard

According to Jansen’s estimates, total private holdings, including those of individuals and firms, are 15,500 metric tons. The official reserves of the People’s Bank of China (PBOC) are around 4,000 metric tons.

This would make Chinese the second biggest holders of gold after India, where citizens are estimated to hold 20,000 metric tons of gold in jewelry and other forms. Private sector holdings for the United States are unknown, but the Treasury still holds 8,134 tons in official reserves.

But where did China get all this gold when in the year 2000 it only had 4,000 tons in total?

The first piece of the puzzle is domestic mining.

“In the 1970s when China needed foreign exchange, that’s when they started their mining industry. They were supposed to start exploration and the people were incentivized to mine gold. That’s why there are so many gold mines in China.” He pegs the number at around 600.

Those 600 mines produced 490 tons of gold in 2015, making China the biggest producer ahead of Australia with 300 tons.

Importing Into a Black Hole

The next piece of the puzzle are imports. According to Jansen’s estimates, China imported about 1,300 tons of gold in 2016, mostly through Hong Kong but also directly from Switzerland and the United Kingdom.

Here, Jansen points out a peculiarity regarding Asian buying: “Asian demand is strong when the price goes down. Western demand is strong when the price goes up. In April 2013, the gold price collapsed and a lot of gold was exported from the West to China, mostly from the U.K.”

When the gold gets into China, it is then sold through the Shanghai Gold Exchange (SGE), which also handles scrap supply and domestic mining.

Curiously, Jansen points out, none of this supply is going to the central bank but rather to consumers and companies.

“In the domestic market, there are laws and incentives to push supplies through the SGE. Scrap, domestic production, imports, all go through SGE at first. The withdrawals from the exchange are equal to total private gold demand.”

Private demand includes individuals who want to diversify their assets or institutional investors, like pension funds but also the gold sold to jewelry companies for later resale.

“Companies and individuals buy gold for the same reason. Get out of the Renminbi, diversify, protection, etc.,” he says.

As for the central bank, Jansen says that their purchases don’t show up in official import statistics and are kept a tight secret.

“The Chinese army even has a special division, I call it the gold army. This gold army can still be active, they can pick it up directly in the U.K.,” he says. The central bank also uses commercial banks who buy in Switzerland or South Africa and secretly ship the gold to China.

For example, the total gold holdings of the London Bullion Market Association dropped by 2,750 tons from 2011 to 2015 but net exports were only 1,000 tons. Thus, those 1,750 tons are unaccounted for and most likely ended up in official Chinese reserves.

According to Jansen’s contacts at Chinese banks, official holdings are closer to 4,000 tons rather than the published figure of 1839 tons.

What does China need that gold for? “They buy official gold to internationalize the renminbi. If there are enough reserves behind it, they can make it a credible currency.” He who has the gold makes the rules.

That’s also why China doesn’t allow even one ounce of gold and silver to leave its shores once it enters. As Jansen put it: “The West has been selling gold into a black hole.”

Read the full article here

It was in the late 1990s when Willem Middelkoop finally figured it out. He came home from work one day and told his girlfriend: “I understand the financial system.”

This may seem ironic because Willem is not a banker, financier, or an economist. Or maybe not, because most mainstream economists and bankers have a horrible track record at predicting market movements or major shifts in the financial system. 

Middelkoop was a photojournalist when he became curious about why he could buy eight properties in Amsterdam with no money down and rent them out straight away for an almost risk-free profit. So he began to ask questions.

It is my belief that, well before 2020, the global financial system will need to be rebooted to a new paradigm in which gold will play a larger role.

— Willem Middelkoop

He found the answers, which helped him understand the financial system—it also led to over 5,000 appearances on Dutch TV and the successful launch of a gold trading company and investment fund.

What Middelkoop learned is presented in “The Big Reset,” originally published in 2013 and updated in 2016 by Amsterdam University Press. Over 100 questions and answers grouped into six chapters, take the reader from the origin of money through the nitty gritty of the banking system, to the history of the U.S. dollar as the world reserve currency, and on to debt, gold, and finally the big monetary reset of our times—the financial crisis of 2008, which Middelkoop predicted back in 2007 on Dutch TV.

Middelkoop is now making his next big prediction.

“It is my belief that, well before 2020, the global financial system will need to be rebooted to a new paradigm in which gold will play a larger role,” he writes.

But first, let’s travel back in time with Middelkoop, who wanted to understand a credit system out of control. If you want to understand banking and credit, you first have to understand the history of money and gold.

(Willem Middelkoop)

(Courtesy of Willem Middelkoop)

A Corrupt System

The lack of training in formal economics works in Middelkoop’s favor here, as he is not clouded by any initial bias. He just wanted to learn the truth about finance and is now sharing his—sometimes critical and out of the mainstream—insights with readers. 

This is quite smart, because it is not the bankers themselves but their shareholders that will have to pay these bills.

— Willem Middelkoop

Do you know why gold became the predominant medium of exchange and why it was later replaced by fiat money? How does a gold standard work and what is fractional reserve banking? What is the history of central banking and why are central bankers “lap dogs for private bankers instead of watch dogs,” as Middelkoop puts it.

Like many other researchers who don’t have the academic blinders of economists, Middelkoop criticizes the Federal Reserve (Fed) for its quantitative easing programs and criticizes commercial banks for their addiction to credit, misallocation of capital, and corruption. An appendix lists all fines paid by U.S. banks from 2000 to 2014. The total is $135 billion.  

“This is quite smart, because it is not the bankers themselves but their shareholders that will have to pay these bills,” he writes.

This critique leads to further discussions of the leading role of the United States in the world financial system, and why Middelkoop feels the days of the dollar as a reserve currency are numbered.

He doesn’t leave out the relevant history of the Bretton Woods financial system and the closing of the gold window of 1971. Middelkoop also explains the price manipulation , confiscation, and nefarious trading of physical gold of Western governments, central banks, and commercial banks.

The Big Reset

He also delves into why the Chinese have accumulated so much gold and what the end game of their geopolitical initiatives is:  

In my humble opinion, China owns all the keys now and they will do what is in their best interest to reach their long term goals. They will continue to play chess on all boards and to support both Russia (big neighbor and needed for commodities) and the United States (worldwide partner for geopolitical and economic reasons). The Chinese leadership understands they need at least another 10 to 20 years to improve their own financial and military structures before they can be in a position to compete with the United States for worldwide leadership.

In the second half of the book, Middelkoop zeros in on the world’s debt load, which cannot ever be repaid in real terms, which is why he warns us away from creative solutions.

“We could even write off all mortgages and nationalize all real estate, and have a system whereby we pay rent to the state. These kind of scenarios are hard to comprehend, but when the need is highest, solutions can become very creative.” It could be the end of private real estate ownership. 

A better one would be the ancient debt jubilee where all debts would just be written off every 15 years or so and the system reset, which may be preferable for the majority.

A more likely reset scenario is the global powers including China working together to use either gold or the International Monetary Fund’s (IMF) special currency unit’s Special Drawing Rights (SDR) to create a new financial system. As usual, there is a significant chance that things won’t work out as planned.

“A breakdown in trust between the most important economic powers could result in a worst-case scenario of escalating trade-, financial- and even real wars, which could include gold confiscations. … There is a risk that a new crisis will occur before a planned reset could be unrolled and chaos will take over.”

Until this crisis occurs, you still have time to read Middelkoop’s book to understand the financial system and its history, and prepare for the Big Reset. 

Read the full article here

Recently, Chinese have been associated with getting their money out of the country because of the weak economy and a possible debt crisis.
Those who are not getting their money out by buying Vancouver real estate or Italian soccer clubs have found another solution to the economic uncertainty: Gold ETFs.
The Chinese segment of this almost 2000 ton global market is tiny (20 tons), but those holdings doubled in the first quarter of 2016 compared to the first quarter of 2015, according to a report by the World Gold Council.
(World Gold Council)
The most popular Chinese Gold-backed ETF (Huaan Yifu Gold) increased its holdings by almost 30 percent to 13.5 tons in the first quarter compared to the end of 2015.
Globally, gold ETFs increased their holdings by 364 tons, the highest number since the first quarter of 2009 contributing the most to gold’s strongest first quarter of the year on record. Total demand was 1290 tons, up 21 percent compared to the same period in the year before.
“The noxious atmosphere of uncertainty created by global monetary policies and shifting expectations for U.S. interest rate rises were cause for concern. Investors sought the safety of gold,” the report states.
(World Gold Council)
The report also mentions the threat of a Chinese devaluation caused the spike in gold demand. Being at the epicenter of these worries, Chinese also loaded up on physical gold and increased their purchases 23 percent compared to the end of 2015. They bought 62 tons.
“I think many Chinese understand if they buy gold in China with renminbi, they are also hedged against such a devaluation, so there is no need for normal Chinese to use gold and bring it out of the country when they made their money in an honest way,” says Willem Middelkoop, author of “The Big Reset.”
Another reflection of this shift in consumer sentiment in China is the fact demand for gold jewelry actually decreased 4 percent over the quarter and 17 percent over the year (216 tons to 179 tons). 
The Chinese central bank, while defending its currency against massive capital outflows has also continued to load up on gold.
“Russia and China–the two largest purchasers last year–continue to accumulate significant quantities of gold,” states the report. China added 35.1 in the first quarter and it looks like the made a good investment. Gold outperformed all other asset classes in the first quarter:
(World Gold Council)

Read the full article here

An introduction to lawyer, portfolio manager, government adviser, lecturer, and author James Rickards could easily be five pages long. Sifting through his CV, it’s easier to pick the things he doesn’t do rather than listing all the different jobs and responsibilities he holds and has held over the past decades. This is what is keeping him busy at this moment:
He is the chief global strategist at West Shore Funds, is a registered investment advisor, and he edits the financial newsletter Strategic intelligence. He advises the department of defense and also lectures at Johns Hopkins University among others. What he is best known for, however, are his two best-selling books about the global financial system, “Currency Wars” (2011, Portfolio Penguin) and “The Death of Money” (2014, Portfolio Penguin).
Both books have defined and predicted important trends in financial markets that the mainstream media and other commentators frequently overlook or pick up on years later.
Epoch Times spoke to Mr. Rickards about his new book “The New Case for Gold” (Portfolio Penguin, 2016), the coming reform of the financial system and China’s role as a source of global market volatility.
Read about why the Fed didn’t hike rates at its last meeting and why gold is the real money in part I of this exclusive interview with James Rickards. Skip to 14:16 in the video to directly delve into financial system reform and China.  
The powers will come together, they will reform the international monetary system.

Epoch Times: In your new book you quote the book of Revelations in the Bible, a quote about the new Jerusalem where the streets are paved with gold. But before we get to the new Jerusalem, there is some volatility according to the Book of Revelations. Where do you draw the parallels with our financial system at this moment?
James Rickards: I’ll leave the biblical interpretation to the scholars, I’m more of a financial analyst and a gold analyst. Clearly central banks have pulled out all the stops, they printed trillions of dollars, they’ve swapped trillions of dollars. They guaranteed the money market funds in 2008 and the guaranteed all the bank deposits. They did everything possible.
We might have avoided something worse that might have happened, like the Great Depression, but none of that policy has been reversed. The Fed’s balance sheet is still bloated. A lot of the swap-lines are still in place. They haven’t been able to normalize policy since 2008.
So what’s going to happen in the next crisis? And these crises come every seven to eight years. We go back to 1987, the stock market fell 22 percent in one day. Not a year, not a month but one day, 22 percent. By today’s Dow Jones Index that would be the equivalent of 4000 Dow points.
Now if the stock market fell 400 points I guarantee it would be on every evening business show, front page news, every website. Imagine if it fell 4000 points. That’s the equivalent of what happened in October of 1987. In 1994 we had the Mexican Peso crisis. Then we had a surprise interest rate hike, Orange county went bankrupt. In 1997/1998 we had the Asian financial crisis, the Long Term Capital Management (LTCM) crisis.
James Rickards with his book “The New Case for Gold” (James Rickards)
I was the general counsel for LTCM, and I negotiated that bail-out. I had a front row seat on that one. I know exactly how close global markets came to a complete collapse. We were within hours from shutting every exchange in the world. People forget about that but that’s exactly what happened.
In 2000 we had the dot.com crash, 2007 the mortgage crash, 2008 the Lehman and AIG panic. These things happen like clockwork. Every six, seven, eight, nine years. It’s been seven years almost eight years since the last one. How long do you think before another one comes? And yet they haven’t normalized policy, so what’s the Fed going to do the next time.
Are they going to print another $4 trillion? Legally they could, but they are at the outer limit of what they can do without destroying confidence. And confidence is the key to the whole thing.
Epoch Times: You talk about the concept of world money in your book, sponsored by the International Monetary Fund (IMF).
Mr. Rickards: So what you are going to see is world money. You are going to see the IMF print Special Drawing Rights (SDR). It’s a geeky name but it’s a kind of world money printed by the IMF. They’ll flood the world with trillions of SDRs. It might work because people don’t really understand what SDRs are. It might just blow by everybody.
At best it will be highly inflationary. At worst it won’t work because people will say, we’ve lost confidence in these other kinds of paper money and fiat money, why should we have any more confidence in that.  
And then you’ll see a gold buying panic and the dollar price of gold would skyrocket. It would be better if the leading financial and trading powers in the world sat down today in relatively calm times and did something like Bretton Woods and reform the international monetary system.
I think if they did, gold would play a role. I am not saying it would be a strict gold standard but I am saying gold would have some role. I don’t think that is going to happen. I think we are going to see a crisis first. Going back to your version of the Book of Revelations you have to have some rough times before you get to the good times.
The Chinese citizens love buying gold.

The powers will come together. They will reform the international monetary system, but they’ll do it in a state of collapse and panic rather than in a calm, orderly state.
In that world, people are going to go on their own gold standard. They’re not going to wait for the financial powers to create a gold standard, they’re going to have a gold standard of their own.

Read the full article here