China is buying gold, but with WHAT?

TreasureHunter

TreasureHunter

Well-Known Member
Hi,

How many are actually putting themselves the question: what is China giving in exchange for their gold?
It's not just the fact that they're hoarding gold is that's interesting. They must be giving something in exchange for it!

I have a feeling they're buying gold with US dollars :rolleyes:
I would like to research the comparison between China's USD (within forex) reserves compared with the amount of gold bought from abroad to see if there's a change to the detriment of the USD.

Apart from internal production, they are buying plenty of gold from abroad.
When they import, I suppose they pay with a highly popular convertible currency - like the USD.

They have a lot of dollars (true, many in the form of bonds), so they could shrink the risk by "shopping the burden off"/"dumping via shopping".

Shoppin' the dollars away...
 
TreasureHunter said:
Hi,

How many are actually putting themselves the question: what is China giving in exchange for their gold?
It's not just the fact that they're hoarding gold is that's interesting. They must be giving something in exchange for it!

I have a feeling they're buying gold with US dollars :rolleyes:
I would like to research the comparison between China's USD (within forex) reserves compared with the amount of gold bought from abroad to see if there's a change to the detriment of the USD.

Apart from internal production, they are buying plenty of gold from abroad.
When they import, I suppose they pay with a highly popular convertible currency - like the USD.

They have a lot of dollars (true, many in the form of bonds), so they could shrink the risk by "shopping the burden off"/"dumping via shopping".

Shoppin' the dollars away...
Click to expand...


Sounds smart to me......... And then they have a large gold reserve and they are getting a lot of gold for there $$$$ at the moment.
 
I'd suspect its paying for gold with:
60-70 % US dollars and Treasury-backed securities
15-25 % Euros and
10-20% is paid for with Chinese Renminbi ('Chinese Yuan')

The Reminbi angle is particularly interesting. If the PBOC can pull it off, they'd be killing three birds with one stone.

Some of China's regional trading partners are becoming more comfortable accepting payment in Renminbi, particularly in South East Asia and Central Asia. Direct currency conversion regimes bypassing the US dollar have been established, including right here in Australia. One or two central banks in those regions have even started accumulating RMB in their own currency reserves. Notably, Thailand and some of the Central Asian Republics are net gold exporters.

(1) All this is a step towards the PBOC's long-term aim establishing the RMB as a viable alternative to the USD or 'currency of ultimate reserve'.

The PBOC (People's Bank of China, PRC's Central Bank) has been partially 'sterilizing' the US dollar inflow by matching it with new Renminbi. The PBOC wants to maintain the favorable Renminbi/US Dollar exchange rate. Of course all this new Renminbi is having remarkable effects on domestic inflation, whose effects on 'social stability' has been markedly felt as costs of living rise.

(2) By paying for gold with RMB, the PBOC can help reduce the domestic inflationary pressure. Keep in mind, even a 50-tonne gold purchases are a drop in the 'very large' bucket. Ultimately I suspect energy and other commodity imports are more significant.

(3) By increasing the % of gold in PBOC's currency reserves, it'd reduce the sovereign risk it faces in holding US Treasuries and Euro securities.

Also, the Chinese do not always directly buy the gold. They can just buy foreign mine production.

In the last 10 years, you'd have noticed the proliferation of Chinese companies (more than a State-owned enterprises) purchasing controlling interests in foreign gold mines. Said purchases are funded with US dollars loaned by PBOC-controlled banks, again reducing the need for RMB inflation domestically.

Rather than selling the production on the open market, the production is sold to PBOC or some type of PRC Sovereign Wealth Fund. In extreme cases, dore bars were directly paid to PBOC-controlled banks (who duly sold it to PBOC) as repayment for USD loans.
 
Roswell Crash Survivor said:
I'd suspect..
Click to expand...

Any references or citations to support your suspicions would be very helpful as you are presenting an interesting angle, but is quite different from what I have heard from industry sources and Chinese experts on the inside.
 
TreasureHunter said:
I have a feeling they're buying gold with US dollars
Click to expand...

I would have thought this is obvious

They are buying anything they can get their hands with the us dollars that keep pouring in

Gold, Companies, resources, real estate
 
I guess step-by-step the following situation is being formed:

*China and many more are trying to get rid of their dollars, but eventually more will try to get rid of it than will try to buy it: USD supply will be higher than demand!
*the Fed will take care of inflating the dollar by overprinting
*eventually the petrodollar system will end - probably the strongest force keeping the dollar alive
*the dollar will lose its status as a World reserve currency

etc.

What I'm saying it that more dollars will be in less hands.
This hasn't happened yet.

My guess is pretty much the US will become the biggest holder of its own fiat money. By then everyone else will have gotten rid of it!

America will remain with its mountain worthless dollars. Literally, the dollars will get back where they came from.

I see this situation is forming step-by-step, year by year.

And China buying gold with USD is one of the strongest forces pushing us towards my imagined "more dollars in less hands" scenario.
 
Silver Pauper said:
Roswell Crash Survivor said:
I'd suspect..
Click to expand...

Any references or citations to support your suspicions would be very helpful as you are presenting an interesting angle, but is quite different from what I have heard from industry sources and Chinese experts on the inside.
Click to expand...

The PBOC and the Chinese administration isn't exactly an exemplar in transparency.

If I had credible concrete figures, I wouldn't label my estimations as a 'suspicion'.

Just like every other large government agency in every government, the PBOC generates tonnes of dry reports and briefing documentation every month.

Another complication is that a significant proportion of this output is published only in Chinese. The PBOC only provides official translations for releases intended for a foreign audience.
 
Not sure what sort of market there may be, but if i was China I would buy a ton of gold (or a gold mine) with a fist full of US Treasury Bonds. Even at 90c in the dollar or even less, it would be a better deal than holding them.


JMO


OC
 
Credit Crunch said:
Remember also that communist china does not export any of its domestically mined gold and just hoards it.
Click to expand...

Right and I'm not sure how (or if) the internally produced and exchanged/bought-sold gold actually affects gold's spot price.

I am not sure how much the international price of gold is affected by what China does "inside" (within its own borders). Since it's semi-isolated and so secretive... It's like a parallel gold market.

We all watch the Fed and what happens in the EU, but what China does internally seems to remain a mistery. I think it the international markets are partly immune to what's going on in China.

I think there's a lot of "secretive gold trade" and that keeps gold's price low.
 
True, but they dig up nearly 400 tons a year, and 10 tons or so in 'value added' sales would hardly count.

JMO


OC
 
If the Chinese would use dollars to buy gold then their dollar reserve should drop and it doesn't.
 
Pirocco said:
If the Chinese would use dollars to buy gold then their dollar reserve should drop and it doesn't.
Click to expand...

Please be more specific and tell us what you mean.

China's reserves in USD? By the way, they still buying US bonds and that should count as "dollar reserves".

Is there a good tool to measure the amount of non-US-owned dollars in the World?

I like to see an evolution of dollar reserves by other states than the USA.
And I'd also be curious to see the evolution of dollars owned by individuals (persons) outside the USA.
...the same for companies.

I guess many of these are immeasurable. It's hard to see how much cash people outside the US have in their possession.
 
Pirocco said:
If the Chinese would use dollars to buy gold then their dollar reserve should drop and it doesn't.
Click to expand...

Not when the dollars are coming in faster than they can spend them
 
TreasureHunter said:
Credit Crunch said:
Remember also that communist china does not export any of its domestically mined gold and just hoards it.
Click to expand...

Right and I'm not sure how (or if) the internally produced and exchanged/bought-sold gold actually affects gold's spot price.

I am not sure how much the international price of gold is affected by what China does "inside" (within its own borders). Since it's semi-isolated and so secretive... It's like a parallel gold market.

We all watch the Fed and what happens in the EU, but what China does internally seems to remain a mistery. I think it the international markets are partly immune to what's going on in China.

I think there's a lot of "secretive gold trade" and that keeps gold's price low.
Click to expand...

All true ... until the music stops! Anybody left holding dollars at that point is gonna have a new ahole torn :lol:
 
mmissinglink said:
China appears to be second only to US in gold holdings....
Click to expand...

US may still have the largest gold holdings (well assuming they really are there) but that is the ONLY reserves they have.
They don't hold any reserves of any other currencies - they don't need to being the world reserve currency.
If the US dollar loses that status, all the US will have left will be the gold


Seems pretty clear where China is positioning itself for the future
 
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