I recently stumbled with Koos Jansen who blogs about China's gold market. After browsing his articles, I observe that his articles are solid, and so I decided to track them down, particularly those that would be of interest to me and would provide me a guide in my own trading and investing. In this post, I just want to summarize the contents of his 7 July 2013 and 9 September 2013 articles.
In the first article, "Chinese press on gold and the dollar hegemony," Koos Jansen narrates three things: (1) that China is well aware about the relationship among gold, oil and the USD, (2) that China knows the subtlety how the US plunders the world using the USD as world reserve currency, and (3) that China is well-informed about the role of gold in the approaching global financial reset.
I got three key insights from reading the above article: (1) QE is actually a subtle form of stealing the wealth of nations, (2) Gold, oil and commodities have positive correlation, and (3) Gold and the USD index has negative correlation.
To my mind, three things have been confirmed. First, whenever the price of oil and commodities are down as it is today, this shows that the outlook of investors about future economic development is negative. Second, USD rising is an indication of deflation. And third, the price of gold rising shows that the people no longer trust the existing financial and political system and they are looking for ways to protect their finance from an approaching crisis.
The second article is an interview with Alex Stanczyk for him to share his opinion about the gold market in general and the China gold market in particular. As for me, the most interesting part of this article is the letter from the Federal Reserve that Alex sent Koos.
I just want to limit myself to the three questions raised by Koos Jansen. They are related to China's gold market, gold trade cycle and gold manipulation as of 2013.
As for China's gold market, three things caught my attention: (1) three reasons why the Chinese government encouraged its citizens to own gold, (2) Weiqi, an unusual game , and (3) gold as China's priority investment.
Alex shared three reasons why China has been so aggressive in its gold accumulation campaign: (1) to divert capital from real estate and equities into gold, (2) to prepare the people in case inflation threatens the economy. In this case, gold stabilizes the society to prevent civil unrest, and (3) in case of economic crisis that the people are in need of cash, the government would gladly buy the citizens' gold. That would increase the government gold reserve, which is consistent with their national gold strategy.
To explain the importance of Weiqi, let us quote what Alex said:
There is this game that the Chinese play, it’s called Weiqi (pronounced Way Chee), and it’s similar to chess. In Weiqi you have to surround your enemy slowly and lay a trap, and than close the trap all at once. That’s the way the Chinese think, they don’t really disclose what their plan is, they just move tiny pieces around the board in a seemingly incoherent way, but when all the pieces are lined up that’s when the trap is sprung. All of the government party leaders play this game, and the CEO’s and chairman of China’s largest businesses are all part of the party.
Knowing the importance of Weiqi, it now makes sense to me why the moves of Chinese government seem disconnected. Reading popular articles written by western economic and financial commentators, it appears to me that the gold market is going in the direction according to China's "incoherent" plan.
As stated above, one of the reasons for China's aggressive gold accumulation campaign among its citizens is the diversion of capital from real estate and equities into gold. This shows that for the government gold is a priority investment. This is in line with the government's overall purpose that in the span of five years beginning 2013, the "plan is to curb real estate and equities investment and get more people investing in gold." Knowing this, it now make sense why recently numerous bad news are coming out related to China's real estate industry and the stock market, and yet when it comes to gold, China is still keeping the western world in the dark.
As for gold trading cycle, Alex thinks that the bottom is already done and that the fundamentals remain intact. This implies a bullish trend for gold since then.
And then finally, concerning gold manipulation, Alex sent Koos a letter from the Federal Reserve proving that for the Fed, managing the price of gold is a must "to maintain control of the global currency system". Arthur F. Burns, Chairman of the Federal Reserve wrote this letter on June 3, 1975. In this letter, we see that the primary concern is about placing a "ceiling on the gold holdings of an individual government," a position that the Federal Reserve favors. Reading this letter, I realized at least four things: (1) the Fed does not like gold to be part of the monetary system. It also does not like gold to have a market price, (2) the Fed's position is different from the US Treasury as to gold ceiling, (3) the Fed is a socialist institution, and (4) the Fed wants a monopoly of inflation.
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