Important Gold Research by: Matt Badiali
Senior Analyst at Stansberry & Associates Investment Research
The largest independent financial research firm in America
In short: Mat found an overwhelming amount of evidence that China is putting the final touches on a brand new type of secret financial “weapon,” with the capability of upending the world’s monetary system.
How and why is this happening?
Well, it’s no secret that the United States is stuck with an enormous debt we can never realistically repay…
…and that China (by far our largest creditor, now holding nearly $1.5 TRILLION worth of loans to our federal government) is stuck with an outstanding loan they can neither get rid of, nor collect.
The Chinese realize we are both trapped.
So the Chinese government is now taking a secretive and somewhat radical approach. And that’s exactly what I want to tell you about today.
We believe that they have recently put into place a covert plan to get back as much of their money as possible. This plan will extract enormous sums from both the United States government, and ordinary citizens like you and me.
How do I know this?
Well, over the past five years, my firm has sent more than two dozen of our analysts and researchers all over Asia… from mainland China to Hong Kong… Vietnam… Korea… the Philippines… and most recently Singapore, gathering bits of information along the way.
And now, I believe we have figured out exactly what the Chinese are going to do, and when they’re going to do it.
Now, some people think China will simply dump their mountain of $1.5 trillion in U.S. debt, in an attempt to destroy the U.S. dollar.
But that will never happen.
Because that would hurt the U.S… sure… but it would hurt China almost as much as it would us.
So instead, the Chinese are taking a radically different approach…
They are finalizing the plans on a radical new type of secret financial weapon.
And this new type of secret weapon is very different from anything we’ve seen before.
I believe this weapon will possibly be unveiled in April, and it could destabilize the United States in various ways.
It could cause markets to crash, at least temporarily.
The U.S. government will suffer a major embarrassment as Americans – and the rest of the world – see that China has been playing the U.S. like a fiddle.
Most importantly, regular Americans will start to lose faith in our currency.
That part is critical, and I hope you will remember it – because, long-term, it will affect your investments, the value of your home, and your ability to have a secure retirement.
I realize this might sound a little hard to believe.
After all, how could the Chinese government actually keep something as big and potentially game-changing as this a secret?
Well, the truth is, they haven’t.
For more than a decade, the Chinese government has published reports about the existence of this secret program in official, state-controlled newspapers and wire services. Officials have even publicly demanded more money for its development.
* In early 1990s, the Chinese government began quietly laying the groundwork for their new financial weapon, making a series of dramatic changes to their financial system. The moves were announced in China’s official newspaper, but were barely noticed in the West. I reviewed hundreds of articles in a historical database, and the only mention was a 148-word item published in the Wall Street Journal on October 1st, 1993.
* In 2000, they made its development official as part of China’s “five-year plan,” the country’s most important policy document. China’s CCTV called it a “pivotal year” and industry hailed the acceleration of the weapon program.
A top private sector official with close ties to the government program called the developments from 2000-2008 “staggering.”
Then came the biggest announcement
* In April 2009, Chinese officials shocked the world with their announcement of the advancement of this new type of financial weapon, which had essentially doubled its capabilities in six years, taking its place as one of the most powerful weapons of its kind in the world.
* In 2011, the People’s Daily – an official propaganda mouthpiece for the Communist Government – reported plans for the program to accelerate even further.
* In January 2013, a senior Chinese official was quoted by Bloomberg as saying the already powerful financial weapon was “too small” and should be built up further. And…
*In October 2013, the Chinese government made its most shocking statement yet. The government used an editorial in its state-run news agency, Xinhua, to call for a “de-Americanised world” – a barely concealed message about its intent to use this new and radical weapon against the United States.
So as you can see… this is a very real development, which has escalated dramatically in recent years.
But here’s what the Chinese government DOES NOT want you to know… and what most major news outlets are afraid to tell you…
I believe that China could unveil this powerful “secret weapon” as early as April 24th, 2014.
Several other experts have picked up on this idea as well. A New York Times best-selling author is predicting nearly the exact same time frame and said China’s financial attack will be “an earthquake.”
* Business Insider called it “the elephant in the room” for one of the world’s most powerful market forces.
* The Huffington Post writes, “It’s amazing how little of the wider public are aware of what China is really up to here.”
* Barron’s reports that the idea that China is developing this “ultimate stealth weapon” – once limited to a few obscure blogs – now “has a mainstream following.”
But while other sources have briefly mentioned this secret weapon’s development, almost no one has put it all together.
And that’s the purpose of this presentation today.
Over the next few minutes, I’ll show you:
* Exactly what kind of financial weapon the Chinese have developed. And how they’ve used secret shipments, government fiats, and their 1 billion citizens to build it.
* The overwhelming evidence that China could unveil this weapon as soon as April 24th, 2014.
* Most importantly, how this situation could directly affect you and…
* What you can do to protect your savings and even profit.
I would simply like to show you the facts, via what’s available as public record.
Then, you can decide for yourself.
And… I want to make one thing clear before I continue: I DON’T blame the Chinese for what they are doing. Not one bit.
In fact, although I know this will sound very controversial… and perhaps even unpatriotic, or “un-American,” I want to make it clear that I would do the exact same thing if I were in their shoes.
Our own government has essentially backed the Chinese into a corner, and we have left them no choice (I’ll explain what I mean in a moment).
The main thing the Chinese have kept secret is just how big – and how powerful – their secret weapon is. But that aspect of this story is relatively easy to reconstruct for anyone willing to do the legwork.
It is revealed in government documents that must be published, by law, in Hong Kong (a Chinese territory) and by looking at where billions, even trillions of dollars are being shifted inside China.
As any journalist will tell you, “Follow the money.”
As I mentioned, as China’s plan plays out, and their weapon is put to use, I believe we’ll see a major shift in the world’s monetary system. We could see a precipitous fall in the U.S. stock market, and a major disturbance of the U.S. mortgage and bond markets.
This, in turn, could affect everything about our normal way of life.
Let me start with what we believe the Chinese have planned, possibly as soon as April 2014. Then, I’ll explain exactly how it will likely affect you and our country. And what you can do about it.
Here’s the full story…
How we lost $500 Billion
I know it might be a little hard to believe that any country, even one as secretive and power-hungry as China, could actually sabotage and take advantage of a nation as powerful as the United States.
But you have to keep in mind: This isn’t the first time this has happened.
Currency wars and battles of central bankers are more common than you think.
Most Americans probably don’t remember this, but we experienced something similar (although on a much smaller scale) in the late 1960s and early 1970s…
As I’m sure you remember, after World War II, the U.S. dollar was actually backed by something real… instead of just a government promise. Back then, our currency was backed by real gold. And as a result, the U.S. government owned two-thirds of the world’s gold.
It wasn’t just a powerful national asset… It was also the basis for the world financial system.
Every world currency was defined in terms of the dollar. And the dollar, in turn, was defined as 1/35th of an ounce of gold. In other words, it took 35 dollars to buy one ounce of gold.
Ideally, this relationship would keep our government money-printing in check: Since dollars could literally be exchanged for gold, the government couldn’t just print all the money it wanted.
But that wasn’t the case…
For one thing, only foreign governments could exchange money for gold – not U.S. citizens. FDR had taken away that right decades earlier.
And because of the dollar’s special status, the U.S. could settle its payments to any country by just printing more to send overseas. Everyone else had to use gold.
So we sent our dollars overseas.
And foreign governments had to watch as the dollars they held become worth less and less by the day. Sounds very much like today, right?
Well, these foreign countries eventually got fed up.
In 1965, French President Charles de Gaulle took $150 million of his country’s dollar reserves, and demanded that the paper currency be exchanged for U.S. gold from Ft. Knox.
A Time magazine article written that year about De Gaulle’s assault, “Perhaps never before had a chief of state launched such an open assault on the monetary power of a friendly nation.”
Of course, De Gaulle was simply doing the rational thing. The U.S. had spent decades struggling to maintain the “official” gold price of $35 an ounce. It even set up an international “gold pool” to dump gold onto the markets every time the price threatened to rise.
But France pulled out of the gold pool. It knew the $35 fiction could not continue and that gold was worth far more on the open market.
The $150 million it withdrew in 1965 is worth $53 billion today.
And France was not the only nation to do this…
Spain soon redeemed $60 million of U.S. dollar reserves for gold. And many other nations followed suit. By March of 1968, gold was flowing out of the United States at an alarming rate. In fact…
It’s estimated that during the 1960s and early 1970s, we essentially gave away about 2/3rds of our nation’s gold reserves… around 400 million ounces… all because the U.S. government was trying to defend the U.S. dollar at a “fixed rate” of $35 per ounce of gold.
We gave away 400 million ounces of gold and got $14 billion in exchange. Today, that same gold would be worth $486 billion… a 3,468% difference.
In 1971, it reached a breaking point.
De Gaulle actually sent a French battleship to New York, loaded with $191 million in cash to withdraw gold from the New York Federal Reserve bank vault.
Then, on August 11th, the British ambassador in Washington received instructions from London to redeem $3 billion of gold from the United States Bullion Depository at Fort Knox.
Four days later, President Nixon went on live television before the most popular show in America (Bonanza) and announced a new plan:
The U.S. gold window would close effective immediately – and no nation or individual anywhere in the world would be allowed to exchange U.S. dollars for gold.
The “gold standard” was dead.
Within about three years, America was in its worst recession since WWII, with an oil crisis, skyrocketing unemployment, a 30% drop in the stock market, and soaring inflation.
And millions of Americans got a lot poorer, practically overnight.
Europe simply refused to keep buying into our insane and corrupt monetary system, and started acting in their own self-interest.
And that is EXACTLY what China is doing today, except the stakes are much, much higher, because China is a much more powerful adversary.
China is now engaged in a full-fledged “currency war” with the United States and the U.S. dollar.
China isn’t hiding this fact at all. A top Chinese central banker recently told China’s official, state-run news agency that the country is “fully prepared” for the coming currency war.
The ultimate goal, as the Chinese have publicly stated, is to create a new dominant world currency, to dislodge the U.S. dollar from its current reserve role. Doing so will enable the Chinese to get back as much of the $1.5 trillion the U.S. government has borrowed, as possible.
And here’s the most important part…
Understanding how the Chinese will execute this “currency war” over the next few years will likely mean the difference between the opportunity to make extraordinary sums of money, and potentially losing a fortune.
You may not think a “currency war” matters much to you as an ordinary citizen.
But I can assure you, this war will affect nearly every American man, woman, and child, whether you like it or not.
China has been preparing for this currency war for more than 30 years. And they will play their “trump card” – sooner than you think.
Here’s what we know…
146,300%… the most important
number in China
For most of the 30 years since the start of the country’s “Reform Era” in 1978, China has been selling (exporting) more goods than they’ve imported.
And the way it works in China is simple: When a business earns dollars by selling overseas, it hands that money over to the People’s Bank of China (or PBOC, the country’s central bank), in exchange for Chinese currency (called either the ‘yuan’ or the ‘renminbi’) at a fixed rate.
There’s nothing fair about this. The Chinese people do all the work, and the Chinese government keeps all of the money. But that’s the way it goes.
So for the past 30 years, China has piled up a massive amount of U.S. dollars and other foreign reserves.
At first, the dollar inflow was small because trade between the two countries was tiny. In 1980, for example, China’s foreign currency reserves stood at approximately $2.5 billion.
But since then, the amount of foreign currency reserves held by the Chinese government has gone up nearly every year… and now stands at $3.7 TRILLION.
That’s a 146,300% increase! It’s simply astonishing to look at the chart of the increase in currency reserves since the early 1980s…
The group that manages these massive reserves is the “State Administration of Foreign Exchange” or SAFE.
And for the past few years, SAFE has had one big problem: What to do with so much money?
What SAFE decided to do with most of these reserves is to buy U.S. government securities (notes, bills, and bonds).
As a result, the Chinese have now accumulated a massive pile of U.S. government debt.
In fact, 60% of China’s currency reserves are in dollar-denominated assets, including a record $1.3 trillion in Treasury notes and bills. The next biggest chunk is in the Euro.
And while the Chinese would love to get rid of these U.S. dollar holdings, since interest rates are close to zero, they are essentially stuck.
You see, if the Chinese starts selling large amounts of their U.S. government bonds, it would push the value of those bonds (and their remaining holdings) way down.
It would be like owning 10 houses on the same block in your neighborhood… and deciding to put five of these houses up for sale at the same time. Imagine how much that would depress the value of all the properties, with so much for sale at one time.
So last year, SAFE did something absolutely remarkable.
They opened an office on Fifth Avenue in New York. This office had one purpose: “To invest in private equity, real estate and other U.S. assets.”
Not paper promises, but real things whose value can’t be manipulated.
“The move by [SAFE], which oversees the world’s largest stockpile of foreign-exchange holdings, comes as it steps up diversification away from U.S. government debt,” the Wall Street Journal reported.
Chinese companies are wise to this strategy, too. In 2012, the Chinese conglomerate Dalian Wanda bought AMC theaters for $2.6 billion. In September, a Chinese company bought America’s largest pork producer, Smithfield, for a whopping $7 billion.
Chinese investors are spending billions on U.S. real estate, too. The iconic 1 Chase Manhattan Plaza in New York, where David Rockefeller once ran Chase Manhattan Bank, now belongs to the Chinese.
But all those purchases pale in comparison to what the Chinese government is secretly orchestrating at the exact same time.
China knows that as long as we continue to print and borrow unfathomable amounts, their U.S. dollar holdings will become worth less and less. So the Chinese want to trade their depreciating dollars for any “real” asset they can find that will better hold its value.
So they’re making a move far bigger than buying movie theaters or buildings.
China’s Big Secret… Revealed
It was no surprise to us when, in 2011, China became the No. 1 buyer of gold in the world.
For many people in the gold market, this was a big shock – India has always been the world’s leading gold buyer. In India, people traditionally save and display their wealth in gold. Their entire financial culture is based on gold.
Historically, silver has played the same role in China… but not anymore.
Of course, China is also producing the most gold in the world each year… by far. And every single ounce that gets produced in China – whether it’s dug out of the ground by the government or a foreign company – must by law be sold directly back to the government.
And here’s the main reason:
I believe with 100% certainty that the Chinese are now clearly on a path to accumulate so much gold that one day soon they will be able to restore the convertibility of their currency into a precious metal… just as they were able to do a century ago when the country was on the silver standard.
Back then, of course, China was a complete mess, looted and humiliated repeatedly by Russia, Japan, the British, and the United States.
But today it is a very different story:
Now, China is one of the fastest growing economies on Earth, with the largest cash reserves on the planet. And as befits a first-rate power, China’s currency is on the path to being backed by gold.
China desperately wants to return to its status as one of the world’s great powers… and they recognize the enormous power of having a dominant world currency.
The Chinese know that in a time when nearly all governments around the globe are printing massive amounts of currency, backed by nothing but an empty promise, China can gain a huge advantage by backing their currency with a precious metal.
A century ago, China used silver to back their currency. Today, it appears they have chosen gold… and as a result, they are buying up the world’s gold supply.
* China is attempting to “corner” the gold market.
As the great financial historian Richard Russell wrote: “China wants the renminbi to be backed with a huge percentage of gold, thereby making the renminbi the world’s best and most trusted currency.”
Christopher Potter, president of Northern Border Capital Management summed up the situation in an analysis for the Lehrman Institute:
First, the scale of China’s gold initiative is unprecedented in world history. This alone should make us take notice. Second, China is signaling that the currency wars of the past decade are changing. Soon, the battle will be influenced by gold. Here in the West, we cling to the notion that our experiment with floating exchange rates and unreserved currencies will somehow save the day… China suffers from no such delusion. It is voting with its wallet that the experiment has failed. It is preparing for the demise of the U.S. dollar.
Again… maybe you don’t think these international currency wars affect you. But I promise you… what the Chinese government is doing right now will affect nearly EVERY American, in a big, big way.
Over the next few years, this may cause some assets to skyrocket, and others to plummet. Even if you buy gold itself, you must know what types to buy and how to do it safely, as I’ll show you in a moment.
Obviously this will have major implications for you and me.
Now maybe you think I’m exaggerating when I say China is trying to “corner” the gold market.
But take a look at a cable that was leaked by the U.S. embassy in Beijing and released by Wikileaks a few years back.
This cable was prepared by the U.S. Embassy in Beijing, and was sent back to officials in Washington, D.C.
The embassy was reporting on a recent report about China’s National Foreign Exchanges Administration. The cable quoted the China Administration as follows:
“China’s gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold.
“They intend to weaken gold’s function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar’s role as the international reserve currency.
“China’s increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB [China's currency].”
And of course, this is simply what the government is saying…
But remember: No government – or any savvy investor for that matter – wants to announce publicly what they are doing, not when they are in the middle of such a major investment play.
So instead of simply relying on what the Chinese government is saying, we think it is much more telling to look at what the government is doing.
And here the evidence is overwhelming…
China’s secret plan, in action
You can see the Chinese government’s covert gold plan in action if you take a careful look at three simple things:
The Chinese government’s massive and secretive purchases of gold.
Their “concealed” stakes in many foreign gold mining firms.
And their ongoing changes to the international gold system.
First, have a quick look at how the government is purchasing gold on the open market…
We can say with near certainty that the Chinese government has been secretly purchasing massive amounts of gold in recent years.
That’s because we know for a fact, according to the most recent figures, that China produces more than 400 tons of gold a year – that’s almost 60% more gold than Australia, the world’s 2nd largest producer.
And remember, by law, ALL of this gold must be sold directly to the Chinese government.
No gold mined in China… not a single ounce… is allowed to leave the country.
It all goes to the government’s reserves.
Yes, the Chinese government allows foreign companies to enter China, and to form joint ventures with local Chinese firms.
But even so: While foreign companies are free to mine as much gold as they want in China, every single ounce must be sold to the Chinese government, at current market prices.
So the government is piling up every ounce that’s mined in China… at least 12.8 million ounces a year (the equivalent of 400 tons).
And that’s just the beginning…
We can also say with near certainty that China is also buying massive amounts of gold from the IMF and other sources, but keeping these purchases secret.
We feel confident about saying this because this is exactly what the Chinese did back in 2009.
If you remember, back then, China suddenly announced that its gold holdings had risen by 75%, because of secret purchases that took place between 2003 and 2009.
These purchases moved China into 5th position on the list of countries with the most foreign gold reserves. But keep in mind, even with these giant purchases, China’s gold holdings still account for less than 2% of their foreign reserves. That’s a pittance when you compare it to places like the U.S. and Germany, which hold roughly 70% of foreign reserves in gold.
In short, we believe China is at it again.
China is importing over 100 metric tons of gold a month through Hong Kong. As Reuters reported, “China’s net gold imports from Hong Kong hit a record high of 136.185 tonnes in March.”
And the mega-buying continues…
Net Imports through Hong Kong have exceeded 100 tons a month almost every single month in 2013.
China imported well over 1,000 tons of gold from Hong Kong alone in 2013. That number is up from 2012, when China imported a record 834 tons – in turn, nearly double the imports in 2011.
This data, of course, comes from the Census and Statistics Department of the Hong Kong government. The Chinese government, on the other hand, does not make such information public.
In fact, the Chinese have not announced their gold reserves since 2009. And when you look at the massive amounts of gold “disappearing” from the world markets, it’s obvious that the Chinese must still be buying.
As Reuters suggested in an article that detailed the sale of 130 tons of gold to “unnamed” buyers: “among the most likely candidates is China, which has the largest currency reserves, at $3.2 trillion.”
We know that the data from Hong Kong does NOT tell the whole story. As Mineweb – a well-known mining industry publication – put it:
“China also imports gold through other routes, notably Shanghai – and… total import figures now look likely to be nearer 2,000 tonnes. Some analysts put them even higher.”
Remember, when China last revealed their gold reserves in 2009, they had “official” holdings of 1,054 tons. They’re now importing nearly double that amount in a single year.
And when you add it all up, our conservative guess is that they’ve probably accumulated another 3,000-4,000 tons since their last announcement – more than tripling their reserves.
Of course, when you are buying this much gold, it’s almost impossible to keep the entire thing secret. That’s why many stories of China’s secretive purchases have been mentioned in the mainstream press…
* For example, CNN Money interviewed Boris Schlossberg, then the director of currency research at Global Forex Trading, and reported that:
“China is considered a stealth buyer of gold… As the world’s largest producer of the metal, China often buys gold from its own mines and doesn’t report those sales publicly. Analysts suspect the country is continuing to buy gold and could in fact, be the world’s largest buyer consistently. It simply doesn’t reveal it’s pro-gold stance… Announcing an aggressive gold buying spree is not in China’s best interest because, for one, it might push gold prices higher. Secondly, it could devalue the U.S. dollar, which would subsequently lessen the worth of the country’s portfolio of U.S. government bonds.”
* Forbes also quoted William Purpura, one of the world’s leading authorities on the subject. Purpura was Chairman of the COMEX Governing Committee, and he said China makes it a practice to camouflage its gold purchases by not reporting them so as not to affect prices in the market.
* And as Business Insider put it last year, “China’s undeclared official gold reserve purchases remains an elephant in the room in the gold market with very little coverage of or analysis of the People’s Bank of China’s quiet and untransparent accumulation of gold.”
China even had the audacity to partner with a U.S. company as it builds the gold stockpile that will torpedo the dollar.
A company called Coeur d’Alene mines is selling gold produced at a huge new Alaskan mine directly to the Chinese.
“The gold concentrates produced at Kensington will be processed by China’s largest gold producer China National Gold through an agreement that is the first of its kind between a state-owned corporation of the People’s Republic of China and a U.S. precious metals mine,” Mineweb reports.
Keep in mind, Coeur d’Alene isn’t doing anything unpatriotic. They’re just selling their gold where it’s most in demand – China.
In fact, China offered the company a very sweet deal. Most gold producers have to wait 3 months while gold is processed and refined to receive payment. Coeur d’Alene is getting paid just seven days after shipment for raw “gold concentrate.”
Of course, not every ounce of gold that’s imported goes directly into the People’s Bank of China’s storage vaults. Some of it goes to industrial uses, individual investors, and China’s flourishing jewelry trade.
But no one knows how much the PBOC is absorbing. We believe it is at least 4,000 tons in total, since 2009.
What we do know is that China is importing thousands of tons and exporting ZERO. Every ounce of gold that goes into China stays there.
Forbes ran a story following China’s 2009 announcement that stated China could amass some 5,000 tons of gold over 5 years. I would not be surprised if China amasses double that amount.
In fact, Jim Rickards, the currency expert who called China’s coming gold announcement “an earthquake,” believes they’ve already surpassed 5,000 tons.
He told one source:
“I have spoken to a number of sources in Asia. I’ve spoken to a number of people who are very close to the physical market, I’ve done my own investigations, etc. Every time I have an estimate and try to verify it, what I get back is that I’m wrong on the low side.”
We think James Rickards is right. We believe the Chinese have probably amassed way more than 5,000 tons of gold already.
Just look at the simple math:
The thing to remember here is that if China is going to continue to purchase massive amounts of gold, the last thing they want to do is make this information public, until they really have to. The less they say, the cheaper the price they have to pay.
The point is, as my multimillionaire colleague Chris Weber wrote:
“By consistently accumulating all the gold they produce, and most likely buying more in global markets on any dips, they [China] are saying much more than any official statement ever could.”
So that’s one way China is trying to corner the gold markets… with massive and secretive government purchases of gold mined in China and elsewhere around the globe.
Here’s the second thing the Chinese are doing…
Step #2: Quietly buying up massive
amounts of gold in the ground
The Chinese government is now in the process of quietly buying up part or all of dozens of the best gold mining companies around the globe.
The government basically has a slew of investments in the gold markets, which it reveals as little information about, as possible.
For example, very few investors realize that the government’s China National Gold Group Corp (CNGGC) owns about a 40% stake in an overseas investing arm, China Gold Intl. Resources Corp (listed in Toronto: CGG).
China National Gold Group is trying to vacuum up gold assets in Canada, Australia and Africa. Its latest move is a potential bid to take over the $1.7 billion Platreef mine in South Africa from a Canadian company, Ivanhoe Mines. It also bought a 95% stake in another Canadian company, Mundoro Mining, a few years ago.
Most investors also don’t know that the China Investment Corporation, which manages $575 billion worth of government money, has major stakes in some of the best mining companies in the world, including:
* Anglogold Ashanti: 100,000 shares
* Kinross Gold Corp: 250,000 shares
* Gold fields Ltd: 350,000 shares
* Teck Resources: 101 million shares
Those figures are as of 2010 – the last time I was able to find when the secretive “sovereign wealth fund” revealed its holdings to the SEC. It may have acquired more big mining stakes since then.
And it gets even more complicated…
China’s biggest state-owned gold companies are fully acquiring and buying equity stakes in several dozen other gold mining firms.
In 2012, Chinese gov’t-owned Shandong Gold Group (the 3rd biggest producer in China) bought a controlling stake in Australia’s Focus Minerals for $228 million.
Then there’s the state owned Zijin Mining Group (China’s biggest gold producer by market value), which said it would spend as much as $2.6 billion a year on acquisitions.
Zijin recently gobbled up Australian gold miner Norton Gold Fields, and took a 60% stake in the gold company called Altynken LLC in 2011.
And keep in mind, the Chinese government, via Zijin, has already bought major stakes in a slew of gold mining companies in recent years, including:
* Long Province Resources
* Gold Eagle Mining
* Inter-Citic Gold
Zijin may even be targeting Iamgold (IAG), one of the largest gold producers on earth, with a market value of $2.4 billion.
As Bloomberg reported: “[Gold mine] takeovers and asset purchases by producers based in China and Hong Kong rose to a record $2.24 billion this year, beating last year’s record $1.96 billion.”
And these are only the deals the government WANTS to make public.
The Chinese government has quietly made dozens of gold acquisitions that we know about, and could have many more in place they haven’t yet revealed.
The point is, when you look at the gold China already has in reserve… and look at what it controls that’s still in the ground… the Chinese might already have more gold than any other nation on Earth.
And that brings me to the third thing the Chinese are doing to corner the gold market…
Step #3 Corning the gold infrastructure market
Right now, the Chinese government is reinventing both their own internal gold markets and also the international gold markets as well.
Here’s what I mean…
For decades, Chinese citizens were barred from owning physical gold under penalty of imprisonment. That lasted until 2002, when China began aggressively opening up its gold markets. Then, in September 2009, China became the only country in the world that I know of to actively promote gold ownership to its citizens.
In fact, the government started a major campaign to encourage all citizens to buy gold. Locals can now buy gold bars, which come in four sizes, at ANY Chinese bank in the entire country. If you don’t think that’s unusual, try buying gold at ANY bank in the United States, and watch the funny look you get from the teller.
The government has also set up thousands of gold “stores” around the country, which look like jewelry stores, but instead sell bars of gold.
As Forbes reported at the scene of one such gold store:
“The crowds surge shoulder to shoulder… It’s one dramatic example of the gold craze in China, which is officially and unofficially promoted by the Communist government.”
Simon Black, a fellow financial writer and trusted source, also visited one of these Chinese gold stores a few years ago, and said:
“On the inside, these gold stores look like jewelry shops – armed guards, glass viewing cases, etc. But instead of diamond crusted earrings and white star sapphires, you see bars. Lots of bars.
“…all with cash… the inventory was flying off the shelf.”
China is the fastest-growing market for gold jewelry, too, accounting for 518 tons in 2012. The Chinese demand higher purity gold than in other countries: More than 80% of jewelry in China is pure 24-carat gold.
And in 2010, the Industrial and Commercial Bank of China (ICBC) – the largest bank in the world by deposits – launched a remarkable new kind of account.
The “Gold Accumulation Plan” averages the daily cost of gold and makes automatic investments in physical gold every month.
More than 5 million people signed up for the accounts in the first two years. In increments as little as a few grams a month, ordinary people accumulated more than 64 tons of gold in the first two years. That number has surely skyrocketed since then.
Why would the Chinese government do this?
Well, China wants to control the world’s gold markets. And if they can get Chinese citizens to purchase large amounts of gold in the coming years, it gives the government the potential for easy access to several hundred more tons. Remember, this is a Communist country. They could ask their citizens to sell all the gold to the government, or could even confiscate it if necessary.
You see, just like the United States, the Chinese government has a history of telling citizens how much gold they could own, and at what price.
Here’s a famous photograph from a 1949 issue of Life Magazine, of Chinese citizens rushing to exchange currency for gold. In an effort to promote confidence in their currency, the government offered citizens the chance to exchange currency for gold at a rate better than could be found on the black market, but had to quit the offer after just 21 hours because of the hysteria that ensued.
Another photo from June of 2013 shows pretty much the same thing:
More than 10,000 people lined up to buy gold during a special promotion. Customers were limited to just 15 minutes inside the store.
The point is, the Chinese government has turned their population into gold-crazed investors and savers.
And they’ve taken further steps too.
* In 2011, the Chinese made available the first yuan-denominated spot gold contract, called the Renminbi Kilobar Gold. Dow Jones MarketWatch reported that analysts see it as “a step toward making the yuan a global reserve currency.”
* In 2012, the Shanghai Gold Exchange (SGE) became the largest trading platform for physical gold in the world.
See, exchanges like COMEX in New York still trade far more gold on paper. Chinese consumers don’t want paper contracts for gold they’ll never see.
During a recent surge in Chinese gold buying last April, the SGE traded 80 times more real, hold-in-your-hand gold than COMEX.
* Last year, China eclipsed India as the world’s largest consumer of gold. Gold consumption in China was up 50% in the first half of 2013 from the previous year. China will be the No. 1 consumer from now on.
* A private firm just built a vault in Shanghai that can safely house 2,000 tons of gold, double China’s already soaring annual consumption.
And the Chinese are doing more too…
Did you know, for example, that the Chinese just purchased the largest gold vault in America?
I mentioned earlier that the Chinese bought an iconic New York skyscraper – the Chase Manhattan Tower, built in the 1950s by David Rockefeller.
What you might not know is that building houses the world’s largest gold vault – longer than a football field and anchored to the bedrock five stories beneath the city’s streets.
The building’s architect has written that it was built to withstand the effects of a nuclear bomb.
It’s located right next to the vault owned by the New York Fed. But this one belongs to the Chinese.
They’ve also purchased one of the most important precious metals exchanges in the world… perhaps THE most important precious metals exchange.
On June 15th, 2012, the Chinese purchased the London Metals Exchange for $2.1 billion.
Naturally, China beat out NYSE Euronext (which owns the New York Stock Exchange) and Chicago’s CME Group (which owns NYMEX and COMEX) in the bidding war for the 135-year-old exchange.
Forbes noted it was the “most expensive bid ever for an exchange… shifting the global hub for metals trading to the East.”
They added: “As the world economy muddles through, China is consolidating its international position in the world of financial markets.”
It’s amazing, isn’t it?
In the United States, the government dismisses gold as barbaric relic.
But in China, the government encourages citizens to do everything they can to acquire more gold.
Clearly, you can see that the Chinese government is determined to make gold a much bigger part of their financial system in the coming years.
There’s no denying that China has built a powerful “secret weapon” in the form of its massive gold stockpile.
And in a moment I’ll tell you exactly how to protect and potentially even grow your savings when China launches its financial attack.
But first I want to show you why this situation is so urgent.
The result: How China will shake
the gold markets in 2014
All the evidence I have studied indicates that China could possibly deploy their secret weapon this year.
I believe this financial reckoning for the United States could come on or around April 24th, 2014.
The announcement would be five years after China last revealed the status of their massive gold “weapon” – and these five-year cycles have major significance in China.
Every major Chinese policy is laid out in a series of “five-year plans.”
The date also comes shortly after five-year plans are typically approved in March, and at an important time for world markets – as “first quarter” news is still streaming in.
China’s Communist Party Congress also operates on a five-year cycle, with major meetings – called “plenums” – each year.
As Business Insider reports, there’s a pattern to what takes place at these plenums:
The first one is for introducing the new leadership.
The second one is about appointing personnel and strengthening the Communist Party.
And the third one is about policy – the one where “new leadership has basically consolidated power and can introduce a broader economic and political blueprint.”
That “third plenum” just took place in November. And the big message was economic reform – opening up China’s markets, and popping a possible Chinese housing bubble.
CNBC reports that when millions of Chinese soon shift from real estate to gold, it could send gold prices much higher, making China’s weapon much more powerful.
But here is the important thing – and the reason why China could really launch their weapon at any time they want.
The weapon is ready.
The announcement of China’s new gold hoard could send shockwaves through the financial markets, and eventually make China and the yuan even bigger players at the international table.
International banking expert James Rickards compared it to a game of Texas Hold ‘Em poker:
You want a big pile of chips. The U.S. has a big pile of chips, Europe has a big pile of chips. The U.S. has 8,000 tons of gold, 17 members of the euro system have 10,000 tons. China at 1,000 tons is not a player, but at 5,000 tons, they are a player.
We think this move could happen as soon as April 24th of this year.
But the truth is, it really doesn’t matter if China makes its big gold announcement BEFORE or AFTER April 24th.
The only thing we as Americans can – and must – do now is to prepare.
I believe that China’s gold plan could have a tremendous impact on your life in the coming years – but I understand that may be a little difficult to comprehend and perhaps even believe at the moment.
I hope, however, that you can put your preconceived notions and skepticism aside.
Because as I said earlier, even though none of us typically care about what central bankers are doing, this is probably the most important story in the world for any American, as far as your finances, your future, and your retirement go.
So what does it mean exactly, for you and me right now and over the next few years?
How China’s Secret Gold Plan Will Affect You
To me, it is now abundantly clear that China is accumulating so much gold for two simple purposes…
#1. First, they want to diversify as much of their foreign reserves as possible away from U.S. dollars and other devalued currencies, which are backed by nothing but a foreign government promise.
#2. And second, China wants to establish a world-class currency, backed by as much gold as possible, which can eventually be integral to the world of international trade… and perhaps even become the world’s top “reserve currency” one day soon.
This is going to affect me and you in two significant ways:
First, I think it’s going to continue to drive gold prices higher… much higher in the years to come. And it’s going to make some gold investments extremely lucrative over the next few years.
That’s the good news.
The bad news is that China’s gold-backed currency is likely to help make the U.S. dollar much less important in the world of international trade and finance. As Barron’s reported, “China wants to establish the yuan as a reserve currency that could someday challenge the almighty buck.”
I know it may be hard to believe that the dollar could really lose its reserve currency status.
But take a look at this chart and decide for yourself:
As the dollar loses its current “reserve currency” position, it’s going to cause dramatic changes to our way of life here in America.
Because in the United States, for the past 50 years, we’ve been basically able to consume as much as we want without worrying about acquiring the money to pay for it.
We’ve been able to do that because our dollars have been accepted and sought after, everywhere around the world.
In short, for decades, because the U.S. dollar has been the world’s “reserve currency,” we haven’t had to produce or export anything to get all the dollars we needed to buy all the oil (and other goods) we need.
All we had to do was borrow and print more money.
And boy did we. Take a look at this chart…
Even as late as the 1970s, America was the world’s largest creditor. But by the mid-1980s we’d become a debtor to the world. And since the late 1990s we’ve been the world’s LARGEST debtor.
Today, our government owes more money to more people than anyone else in the history of the world.
And that was before the financial crisis!
Today we still borrow about $2 million every single minute, and we’ve been borrowing 46% of ALL the money the federal government spends.
With all of these bad debts piling up, we’ve had to begin repaying our debts by printing trillions of new dollars.
Remember, as one contributor to Forbes recently put it:
[The Fed] simply fires up the printing presses and print out of thin air $85 billion of new money each and every month.
That’s about $1 trillion new dollars printed each year.
And now, finally, the impact of this is being felt in a big way.
I believe our creditors (which include not only China but dozens of other foreign countries, plus other investors here and abroad) are likely to soon completely stop accepting U.S. dollars in repayment… or greatly discount the value of these new dollars.
What will that do to America?
Well as other nations begin to prefer gold or even an alternative currency to the U.S. dollar, it will have a huge impact on life in the U.S.
Everything we import… food, furniture, clothing, and oil, just to name a few, will get much, much more expensive.
Our quality of life will plummet…
As Sam Zell (one of the richest men in America) told CNBC:
“My single biggest financial concern is the loss of the dollar as the reserve currency. I can’t imagine anything more disastrous to our country. I’m hoping against hope that ain’t gonna happen, but you’re already seeing things in the markets that are suggesting that confidence in the dollar is waning. I think you could see a 25% reduction in the standard of living in this country if the U.S. dollar was no longer the world’s reserve currency. That’s how valuable it is.”
And as banking expert James Rickards says in his best-selling book Currency Wars:
“The value of a nation’s currency is its Achilles’ heel. If the currency collapses, everything else goes with it… Stocks, bonds, commodities, derivatives and other investments are all priced in a nation’s currency. If you destroy the currency, you destroy all markets and the nation. This is why the currency itself is the ultimate target in any financial war.”
Like I said, the Chinese are not stupid.
They understand the power of having a gold-backed currency, which could ultimately become the world’s new reserve currency.
As a result, they’re buying up as much of the world’s gold as possible.
The Chinese know that nearly every country around the globe is in massive debt… and nearly every country in debt is printing money (and thus, going deeper into debt), and debasing its currency.
So the Chinese have come to the logical conclusion that gold is the one thing that can help them protect their current reserves, and perhaps even establish a true world currency, while almost every other currency gets printed to the point of worthlessness.
That is why China is on a secret mission to corner as much of the world’s gold market as possible.
For several years, we’ve been warning about the loss of world reserve currency status for the U.S. dollar.
With roughly half of our national debt held by foreigners, we have long believed efforts to print away our obligations will prove catastrophic for our dollar in its position as the world’s leading reserve currency.
But until recently, we were unsure of the exact mechanism by which the dollar would be replaced.
Now, we see how it will likely unfold…
The Chinese will increasingly hedge their exposure to the dollar by becoming the world’s leading gold investors. By taking over the world’s gold markets and building a huge stockpile of gold, they would be able to back their currency with the world’s traditional form of money.
Once they are ready to make the yuan freely convertible, they will have created tremendous demand for their bonds and bills by making their currency the world’s most reliable… and the only one backed with gold.
The impact on the dollar could be catastrophic… And every day the dollar falls, China’s gold stockpile will grow more valuable (and more powerful).
No, it is not possible to predict the future with 100% accuracy…
But when people ask me “How will you know when to sell your gold?” I explain that I believe the end game for this gold bull market will likely be a situation where you can exchange gold for currency that is convertible into gold at some official price.
I believe there’s a very good chance that currency will one day soon be the Chinese yuan.
No, it doesn’t make me happy to say this. I feel very sorry for the millions of Americans who don’t understand at all what is going on. These folks unfortunately are in for a rude awakening, and a big decline in their quality of life.
But it doesn’t matter whether we like what’s happening or not… it’s just basic economics.
China is going after all the gold it can. And clearly, gold is going to be much more important to the financial system – and much more valuable – in five years than it is today.
Of course, here’s the best part…
Even if I’m completely wrong about the yuan becoming the next reserve currency, the simple fact is that China has more cash reserves than any country in the world.
And China is on a mission to accumulate as much gold as possible over the next 5 to 10 years… which makes it very easy to position yourself to make money.
In other words, if you ignore this trend, you are ignoring what is probably the easiest, safest, and most reliable way to make money and also protect your family from the inevitable financial crisis in the U.S. dollar.