When the history books are written, will May 2015 be viewed as “dead
center” of the eye of history’s worst Category 5 financial hurricane? For
several weeks, I have written of the lazy, complacent, clueless “journalism”
that attempts to reconcile the dichotomy of the worst economic data of our
lifetimes with the highest stock and bond prices; let alone, surging oil and
copper prices whilst lumber, coal, iron ore, and countless other industrially
sensitive commodities plunge. Care of decades of brainwashing and
manipulation, the MSM doesn’t even attempt to explain the enigma of
Precious Metal price movements. And as for “forecasting” the future,
whatever remains of their disgraced, ratings-deprived minions simply parrots
Wall Street and Washington propaganda. And even when reality does creep
its way into their sphere of influence, it magically disappears like ice in
the desert.
To wit, following last week’s worst GDP report in years – which will
likely be revised lower – and an FOMC statement so dovish, it made
actual doves blanch, U.S. government-led “manipulation mechanisms” simply did
what they do best; i.e., attack paper PMs, and goose stock prices.
Consequently, said “journalists” decided to simply take the weekend off –
knowing full well that not only is no one listening to them, but given their
complete lack of understanding of economic and markets, there was simply no
way they could explain such paradoxes to readers. Hence, this weekend
represented the unequivocal low point of “horrible headline” volume in my 3½
years at Miles Franklin; NOT due to a lack of bad news, but the extreme
dearth of reporting and analysis of it.
For example, we are just two days from Greece owing €200 million to the
IMF, and eight days from a much more terrifying €770 million payment
due. The former will probably by scrounged via a variety of shady
measures – like not paying public employees; directing public bank deposits
to the National bank; and raiding pension funds. However, there’s not a
snowball’s chance in hell of culling enough funds for the latter – which, of
course, would mean a default (and potentially “Grexit”) could be mere weeks
away. That said, the most I saw this weekend on the topic was an
article of how “progress” was being made on the very debt “deal” Alexis
Tsipras has vowed to never take. Let alone, the Greek people, who swept
Tsipras’ Syriza party into office a mere three and a half months ago under a
virulently “anti-austerity” (read – NO DEALS) platform.
In China, the week opened with its PMI manufacturing index plunging to
48.9 in April from 49.4 in March; representing its biggest monthly plunge in
a year, and, despite the comical “7%” GDP growth China purports (albeit, its
lowest official level in 35 years), unequivocally purporting recession.
European PMI data, too, depicted continued economic flat-lining despite the
so-called “guaranteed” benefits of the ECB’s Euro currency debauchery
schemes. And here in the States, we were treated Friday to a horrific,
“unexpected” plunge in construction spending – as well as extremely weak,
“unexpected” declines in April ISM Manufacturing, PMI Manufacturing, and
motor vehicle sales. And yet, with the same rote consistency as 2:15 AM” EST Cartel gold
and silver attacks (on 429 in the past 491 trading days), expectations for
this week’s litany of economic data is decidedly bullish!
I mean, we have witnessed 2008-like economic weakness – and “misses”
versus expectations – for perhaps six month now. And yet, week after
week, the “consensus” unwaveringly predicts improved readings for essentially
all economic data readings. Several years back, I discussed how such “expectations” are
created; i.e., by the very “evil troika” of Wall Street, Washington, and the
MSM incentivized to perpetually cheerlead the economy and mislead the
masses. However, given the recent, relentless avalanche of global economic
implosion, even I am dumbfounded by just how pervasive, and
unwavering, the bullish tide has become. Of course, the only reason
this has occurred – dove-tailing with record high financial asset valuations,
margin borrowing, and sentiment; and record low Precious Metal valuations and
sentiment; is the rampant manipulation that has temporarily disabled
the free market price discovery process. Remember, “Economic
Mother Nature” has never been defeated – and given today’s historically
bad outlook, her “winning streak” has never less threatened.
As I watch today’s Precious Metals surge, seemingly “un-catalyzed,” for
the second straight Monday (likely, as the Cartel “exhales” following last
week’s horrific GDP report and uber-dovish FOMC statement), I’m geared to
write of the type of topic I typically avoid. That is, one in which a
significant degree of speculation is required to drive the point home,
given my bailiwick has always been – and will always be – the realm of fact.
Perhaps it’s because the lack of news flow has limited the amount of
incremental opinions on the “usual suspects,” and perhaps because I have
strong views of this particularly topic. Which is, the never-ending
speculation as to when, why, and how the Chinese government will inevitably
announce how much gold it owns.
For the record, the Chinese have made just three gold reserve
announcements since the turn of the century. First, in 2001, they
raised their official reserve holdings from 394 tonnes to 500 tonnes.
Second, in 2003, they raised it to 600 tonnes. And finally, in April
2009 – with the price at $890/oz at the time – they increased it to the
decidedly less “round” figure of 1,054 tonnes. Based on reported levels
of the world’s myriad Central banks and Treasuries – irrespective of the fact
that most such statistics, like the Chinese, are flat out lies, and governed
by IMF rules allowing the double-counting of leased and swapped reserves –
China is the world’s seventh largest gold owner. Of course, given that
the IMF’s holdings are likely the double-counted holdings of various IMF
members, China’s 1,054 tonnes of gold reserves, officially, are the
world’s sixth largest – well behind the world’s top holder (LOL), the United
States, with its mythical 8,133 tonnes.
That said, as China possesses the world’s largest currency reserves, its
gold holdings represent no more than 1% of its total “foreign exchange”
reserves; compared to, say, the United States at 75% and Italy, Germany, and
France at roughly 68%. In other words, even if China holds far more
than 1,054 tonnes (it does), it has a loooooong way to go it before its
total monetary reserves have any material level of Precious Metal backing.
Given China’s centuries-old affinity with real money (China “boasts” the
first hyperinflationary fiat currency collapse, circa 900 AD); and the
incredible growth its economy – and currency reserves – have experience in
the past two decades, it’s difficult to believe China’s gold reserves were
not significantly higher than 1,054 tonnes before the 2009 announcement
(particularly in light of the global gold-buying frenzy amidst the 2008
financial crisis); if not, vastly higher. And don’t forget that
Chinese citizens weren’t even allowed to own gold until the 2002 opening of
the Shanghai Gold Exchange – which has since leapfrogged the COMEX and LBMA
as the world’s largest physical gold offtake mechanism. Moreover, since
2009, all manner of evidence – both empirical and anecdotal – suggests
dramatic Chinese gold reserve growth; both within the government, and via
civilian purchases – particularly as the Chinese government started actively
promoting civilian buying that same year.
To wit, Shanghai Exchange deliveries have since gone parabolic;
Swiss gold fabrication for export to China has reached record levels; and
comments, both official and unofficial, regarding the importance of gold have
become staples
of the political and monetary establishment. Moreover, at more than 400
tonnes per year, China became the world’s largest gold producer in 2007 –
with an official policy that all such production is to be purchased by
its government (which, by the way, either directly or indirectly owns the
vast majority of mines).
In time, the Chinese will clearly want to capitalize on its vast gold
holdings by “backing” the Yuan, either officially or on a de facto
basis. However, the how, when, and why remain a
mystery – with most PM community members, in my view, under the incorrect
pretense that a “grand plan” is being devised by a handful of Chinese
Communist Party leaders to be imminently “launched.” In fact, many were
hoping this month’s planned IMF SDR symposium (since indefinitely delayed)
might provide just such a catalyst – given China clearly wants the Yuan to be
included in the IMF’s updated SDR “currency basket,” but was recently deemed
“not ready” by the Western monetary lords.
To start, I strongly disagree that the Chinese feel any sense of urgency
to be “included” in Western monetary reindeer games. For one, China no
longer needs the West, given it, and its satellite states, have become
the world’s dominant manufacturing powerhouses. Plus, China’s
government is far wealthier (net of debt) than the West; and in setting up
the BRICS development bank (to rival the IMF); the Asian Infrastructure
Investment Bank (to rival the World Bank); countless currency swap agreements
with myriad nations; and its own SWIFT monetary transfer system, it clearly
believes it has the ability to dominate global trade. Secondly, in my
view the “SDR,” or Special Drawing Right, which is simply a basket of the
West’s “leading” fiat toilet papers, not only has not a chance of ever being
used; but frankly, is more of a giant propaganda joke than an actual serious
concept. And last but not least, I cannot emphasize enough that whilst
the Chinese government’s long-term plan is to dominate global trade
with a gold-backed Yuan – either officially or on a de facto basis
– such an announcement is the last thing the current Chinese
government desires.
Nothing occurs in a vacuum; and certainly not world-changing “Big Bang”
events like, for instance, de-pegging the Yuan from the dollar, or announcing
an official or unofficial gold backing – to the tune of 5,000, 10,000, or
perhaps vastly more tonnes. When such knowledge becomes public,
either purposefully or by accident, it is highly unlikely to be part of a
grand Chinese plan, in my view – as such an announcement will have such
broad, cataclysmic political, economic, and social ramifications, there’s
essentially no chance the current government would survive it.
Governments, after all, care 99.9% about maintaining their power, and 0.1%
about all else. To that end, I put the odds of the Chinese government,
unprompted and un-catalyzed, simply coming out and saying, “yeah, we have
20,000 tonnes.” at about the same level as the CFTC coming out and saying,
“yeah, gold and silver are illegally suppressed by JP Morgan.”
Instead, I believe a more likely scenario is that the next major financial
crisis – likely, the “Big One” that destroys the world’s largest fiat Ponzi
scheme – forces the Chinese to “defend themselves,” and their crashing
currency, by announcing their massive gold reserves. Perhaps, this may
actually be somewhat planned, if an exploding dollar (due to a global,
fear-based “flight to liquidity”) forces the PBOC to de-peg the
Yuan. If this occurs, the most likely market reaction would be a
plunging Yuan; which in turn, could force the PBOC to slow the Yuan’s
descent by announcing its massive gold reserves. Either way, the global
ramifications of such an announcement would be so powerfully negative, the
Chinese economy – already on death’s door – would be dramatically weakened as
well. And thus, you can see why such a scenario is decidedly NOT
desired by the Chinese government.
To conclude, whilst there is simply no way of knowing exactly how events
will play out as the world’s largest ever fiat Ponzi scheme collapses, the
one thing I am sure of is that such events will decidedly NOT be catalyzed by
government declarations. In other words, as they created this
mess; and they are most incentivized to maintain the status quo; there
is simply no way that theywill purposefully catalyze its
collapse. Instead, “Economic Mother Nature” will do the job in due
time; and whether she “allows” governments to play an active role in managing
the collapse, make no mistake. It will be she that controls the
action, and she that starts and ends it.
