Alasdair Macleod: Russia and China building their gold reserves

China Gold June Imports_0China has been notably relaxed about her own people acquiring gold, and the government itself appears to be absorbing all of China’s mine output. Russia is also building her official reserves from her own mine supply. The result over time has been the transfer of above-ground gold stocks towards these countries and their allies.   The geo-political implications are highly important, but have been ignored by western governments.

 

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From Alasdair Macleod, GoldMoney:

Western economic commentary on China and Russia is usually coloured by monetarist assumptions not necessarily shared in Moscow and Beijing. For this reason, Russian and Chinese fiscal and monetary policies are misunderstood in financial markets, as well as the reasons their governments buy gold.

China has been notably relaxed about her own people acquiring gold, and the government itself appears to be absorbing all of China’s mine output. Russia is also building her official reserves from her own mine supply. The result over time has been the transfer of aboveground gold stocks towards these countries and their allies.   The geo-political implications are highly important, but have been ignored by western governments.

China and Russia see themselves as having much in common: they are coordinating security, infrastructure projects and cross-border trade through the Shanghai Cooperation Organisation. Furthermore, those at the top have personal experience of the catastrophic failings of socialism, which have not yet been experienced in Western Europe and North America. Consequently neither government subscribes to the economic and monetary concepts prevalent in the West without serious reservations.

We saw evidence of this from Russia recently, with Putin’s appointment of his own personal economic adviser, Elvira Nabiullina, as the new head of Russia’s central bank. Ms Nabiullina is on record admiring, among others, the writings of Robert Higgs – a leading US economist of the Austrian School. She is therefore likely to take a strong line against the expansion of bank credit, which is confirmed by Russian commentators who believe she will prioritise reforms to strengthen bank balance sheets.

She is not alone. The People’s Bank of China recently let overnight money-market rates soar to over 20%. The message is clear for those prepared to look for it: they are not going to fuel an extended credit bubble. The two countries have learned how damaging a bank-credit-fuelled business cycle can be, and are determined to restrict bank lending. Western commentators find this hard to understand because it does not conform to the way western monetary policy works.

It seems that the leaders of both Russia and China are also painfully aware of the importance of currency stability in a way the West is not. The comparison with the West’s reckless monetary policies is stark. It follows that Russia and China are increasingly concerned about the major currencies, given both countries have substantial trade surpluses. Their exposure to this currency risk explains their keenness for gold. Furthermore, they know that if the renminbi and the rouble are to survive a western currency crisis, they must have the sound-money credibility provided by a combination of monetary restraint and gold backing. And the reason China is happy to let her citizens plough increasing amounts of their savings into gold is consistent with ensuring her people buy into sound money as well.

While the Chinese and Russian governments are authoritarian mercantilists, there are elements of the Austrian School’s economics in their approach. The tragedy for the West and Japan is they have embarked on the opposite weak-money course that can only end in the ultimate destruction of their currencies, leaving Russia and China as the dominant economic powers.

 

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Comments

  1. Buy PM’s ‘short’ the USD

  2. So, the reality is, we’re still getting it in the back door, because the crimes continue unabated in the face of nothing but positive fundamental news for PMs.
     
    Here is a great article by Jeff Nielsen.
    http://bullionbullscanada.com/gold-commentary/26273-fraud-confirmed-100-day-delay-to-take-bullion-delivery-in-london-
     
    It touches on a couple of important things. I’ll contrast them to some of the idiotic things the shill here mikeyj80 or whatever always spouts off.
     
    NIelsen reports, that cash settlement at steep premiums indeed has certainly taken place. This would include the crimex, where mikey steadfastly maintains that no, it doesn’t.
     
    Secondly it remarks to something which I’ve read a couple of times recently, that miners in fact have almost all gotten out of the hedging business. Mikey likes to spew dog feces in the regard that miners ill be OK for a while, because they are hedged. News flash, they aren’t.
     
    So… as much as I hate to say it, we need to see the mining sector collapse due to this overt criminality, because in the face of 100 day lead times for bullion delivery out of the lbma (because of their supposed logistical issues), unprecedented demand, collapsing ore grades, increased cost of energy, ZIRP / NIRP, etc etc etc all that has happened is we’ve continued to have our faces torn off.

    • @Canadian-Dirtlump – Nielson doesn’t know what he’s talking about.  While I agree that 100 day delays constitute a shortage and mean the metal is likely still ore, the Bloomberg article Nielson is referencing is reporting on 100 day delays at LME warehouses in Detroit.  The LME is for base metals, not bullion.   While I dont doubt our friends at Goldman and the Morgue are rehypothecating copper as well as gold, Bloomberg is NOT reporting 100 day delivery delays at the LBMA.

      -Doc

    • that is fine, the salient point I was trying to make there is cash settlement is indeed used, and you can’t use their system to break their back, and the majority of miners are not hedged, and therefore are going to take it in the pills pretty quickly once their forward contracts are satisfied. YOu don’t have a bunch of miners hedged at 1500 / 30. No way.

    • @Canadian-Dirtlump, once again a complete lack of respect for, good to see your true colors coming through.  I’ve not had one pun e of disrespect for you until now, thanks for sharing!

    • @Canadian-Dirtlump
       
      cash settlement is indeed used. often parties choose to trade with each other for cash.  Please post ONE instance of a FORCED cash settle on major futures exchanges, lets not count the exchange in Asia that shuttered its doors as I think anyone with a gram of sense sees that was not a default but just a non successful biz.

  3. I’ll add some perspective on India.
     
    I’m on record saying up to 300 metric tones of gold will be smuggled into India over the next 12 months and that’s enough to neutralize a big part of anything the Indian government tries to do to reform India’s affinity for gold.  During 2012, ten percent of the gold flowing into India was via smuggling according to large bullion dealers quoted in the Indian press.  That was happening mostly when taxes were at 2%, with no soft quotas and no restrictions on interbank lending for gold.  During 2012 gold imports stood at about 1000 metric tons and current estimates for 2013 stand at 800 metric tons.  As you can see, 10% on those sort of numbers results in up to 100 metric tons of gold — and that’s well before the draconian steps to slow gold imports India has now taken and will likely escalate.  If they can’t stop 10% on 1000 metric tons during lax regulatory times, they certainly will inspire at least a doubling of smuggling now — if not 3x.
     
    Eric Sprott has been discussing a super fast growth in Indian silver imports that appear to be replacing some of the gold inflow authorities are attempting to slow (moving gold taxes from 2% to 8% in under a year, banning interbank lending for gold, and “soft” quotas on imports that amount to allocation schedules for main bullion/jewelry/refining operators).  He’s on to something big.
     
    Jim Rickards recently made the observation that India could simply change the way it reports its trade balances by declaring gold as money and part of what would be seen as similar to formal banking sector reserves.  So what if it rests on the necks of women, etc.?  It’s still in the country and it’s not like the import of a consumable that vanishes upon consumption, he argues.  It’s the importation of a store of wealth that can be used later and only stores wealth.  Change capital account reporting and this suggestion becomes pretty easy to execute on the ground.  Meanwhile, Indian bureaucrats could better spend their time trying to make the Indian economy more open to — and efficient with — real capital investment.  Bureaucratic red tape in India is world famous and instead of beating common Indian citizens over the head for their desire to have investments that work, the government should be spending more time reforming the Indian economy so as to create a natural desire among Indians to have greater participation (not part of Rickards’ thesis as far as I know but I’m sure he’d agree with me).

    Western business media attempt to overemphasize the decline coming out of India and downplay what’s going on in China, Russia and other hot demand spots. This time next year, the media is going to have egg on its face.

    • Exactly. It’s also one of the biggest problems trying to discuss gold, silver or anything else with people on these boards who don’t have a worldview on this. These guys are stuck in the mud with American rose colored glasses when it comes to this. And anyone pointing out these facts is dismissed as a “conspiracy loon”. 
       
      I don’t know when the commercial side will torch the shorts (lemmings), but their day is coming. The bullion banks will make a shit load of money monkey hammering these hedge funds and speculators shorting gold and silver in record numbers. It will violent, nasty and mean, and really surprise some people when this goes down. Look at the charts. It’s a joke with everyone piled on the wrong side. Again.
       

  4. Erik   your comments about India are very telling  If the Indian government got out of way of the Indian people, and allowed this country of 1.2 billion to exercise their abilities,  the country would explode.  Unfortunately the worst of the British systems of bureaucracy and queuing coupled with the embedded corruption of the government culture and caste system will not die quickly.
    When a government fears, taxes and bans an item that is demanded by the people, whether it’s drugs or gold and silver, the price will go up, government revenues will drop and the item will go into scarcity. Holders of PMs become outlaws. That suits me just fine–or at least it does for me.
    Maybe if our government imposed some of these taxes and duties on gold and silver in this country, we’d see some price increases.  Sorry, I couldn’t help making the comment.  It’s just pretty obvious even if it’s completely unacceptable.
    But with Canadian Dirtlump’s notations, the fact the LBMA bullion banks are empty, JPM’s 100,000 ounces (3.3 tons) deficient in the June settlements, and COMEX is probably dry and GLD/SLV, if they contain any physical metals, offer one last vault to loot, it does not suprise me that UBS, JPM and DBank are offering their high net worth clients safe haven for their gold holdings.
    In my opinion, all that will do is delay the day of reckoning that these clients will see their PM stores stolen. I’d trust an offshore gold account about as much as I would trust renting my home to some vagrants that were just paroled from Pelican Bay Supermax.

    Switzerland and other EU countries have pillaged allocated accounts. The evidence of that is substantial. ABM AMRO not delivering in April 2013 (Yes, I know that they sold off that division but appearances are reality in the world of news on this) was a huge factor in theft of allocated accounts. I bet the registered and eligible designations of gold and silver are not being observed, so both account types are going to be used as the bank sees fit.
    I seriously doubt if anyone is safe in that regard and as for my comments about the government taking action against our PMs, those laws are already written into Obamacare and NDRP. All it would take is Obama pulling the trigger, either for revenues, sequestering of PMs or potentially even seizures.
    The fact that MF Global and Corzine are being taken to task for the theft of client accounts, that took place nearly 2 years ago. As for it being a crime scene, it’s too little to late. The looting look place long time ago and the trail will continue to run cold. There is about as much chance of anyone being ;held accountable’ as the real criminals of Benghazi will be found–hiding in plain sight.
    That theft set up a clear MO for all the bullion banksters to ply their trade of client theft without any fear of being caught.

    • Speaking of SLV, I shudder to think what sort of damage they can do by drawing down SLV. REcall they had an imaginary addition of several thousand tonnes in 1 DAY earlier this year. It’s sad, but again, we need the mining sector to utterly collapse and show obvious inventory issues before we get set free IMO, even if we ever do.

    • I know mikeyj80 made the case that ABN AMRO didn’t formally default.  But why would the new operators of the bullion vaulting operation shut it down?  Generally, bullion valuting is a very profitable business — even when customers are not being hypothecated and re-hypothecated.  Did mikeyj80 ever explain that?  I  was busy at the time and didn’t catch all his messages. 

    • i did not, my analysis ended with abn dumping a buz unit, not defaulting n physical gold.  didnt really search beyond this, but did respond to your message in the other thread.

  5. Guys,all I want to know is about Silver at this point andwhere itwill head in the near future. What Russia and China are doing with Gold does not relate to Silver.

    • “What Russia and China are doing with Gold does not relate to Silver.”
       
      Ranger, no offense, but I think you need to be a little more rigorous with your research.  There is a correlation. Furthermore, if the data Eric Sprott has been reviewing turns out to be corroborated and in fact correct, Indian silver consumption is going to BLOW all of our minds.  He hasn’t been able to nail down the facts as of yet.  Neither have I but I haven’t tried very hard.  I’ll try in the next couple of days (Mr. Sprott, if you’re reading this you can buy me a beer if I nail down it the data ;-) )
       
      Ranger, India and China have, at times in the not too distant past held more silver than all other countries.  China was, in fact, one of the last countries to go off the silver standard for their circulating money.  Indians and Chinese fully understand silver.  

  6. Despite all of this silver buying from India, there is still plenty of silver available at $20 oz today.  I find it sad that for silver to go higher, we need India to increase its silver buying.  
    The physical demand for silver in the US, UK, Japan and Europe is very weak, if it were not for China and India, gold would be $700 and silver $10.    
    Here we are 13 years into the bull market, and still very weak physical demand, I don’t know if that will ever change in those parts of the world.

    • Just wondering if you have an article to back up what you are saying. IF there is a 100 day waiting period for delivery of large gold and silver orders in the LBMA, it is more than likely because it is still in ore form somewhere LOL!

    • It’s a joke reading bullshit like this. The phrase “can’t see the forest for the trees” comes to mind.
       
       

    • Well, sadly, there is a grain of truth to what zman is talking about.  But zman, you’ve got to get real and see the forest for the trees if you want to wrap your mind around as much truth as possible.  North American physical demand is on track to be a record year, as can be seen by bullion sales out of the Canadian and US mint, for example.  But the power and force of paper selling at a volume level and order of magnitude larger has more than offset that true physical demand and turned price discovery on paper markets into a total joke.   Thus, you can state publicly that if there was more true physical demand, the paper market wouldn’t be dictating the price at sub-$20. Technically, that’s a true statement in a very limited sense, but it’s NOT a fair and accurate description of the overall market and it overstates what will be required to break the tyranny of bogus paper-driven price discovery.

      Just because there lacks a large enough school of piranha in North America to bite-off enough small chunks of silver to aggregate into a paper market killing volume of purchases speaks NOTHING about the fact that if you or anyone wanted to buy $10,0000,000 worth of silver, you wouldn’t be able to get it for months because silver for purchase in meaningful size is not availble.  And when I say “meaningful size,” let’s not lose site of the fact (forest for the trees) that $10 million is a piss in the bucket relative to overall paper silver.  Two PSLV offerings back, Eric Sprott received bars that were minted months after the listing of his shelf offering.  That’s a cold, hard fact that proves what I’m saying is true – in keeping with what Canadian Dirtlump is noting as well.
       
      Recognize this contradiction in object reality for what it is. 
       

    • buy futures, stand for delivery, park your truck,take your silver.  There is the volume available to do this, and betting people are getting long at these prices.  get long comex, expect to have to take delivery but hope you can sell the comex position and buy the phys from someone at a later date.

  7. You guys need to read FOAOA’s blog to understand what is happening to gold and the revaluation process that is beginning to show itself.

    • the last time I used FOFOA, being a silver stacker, was when I ran out of toilet paper. Prescient fact based prognostication in a thoroughly manipulated market is largely useless.

    • Many FOFOA followers are like religious converts.  While there’s much wisdom flowing through that blog, they don’t have a monopoly on the definition of “free gold” and their flock have a number of things flat-out wrong.  For example, many among them claim that mining companies will all go bust (note: I said “all”), an end game furthered by the fact that it’s assumed all paper exchanges will go to zero/default, and that miners will not have end markets to sell into.  In reality, miners generally don’t sell directly to the exchanges.  They sell to refiners — and only with “dore” bars (that need refining).  Meanwhile, it’s highly unlikely that all paper markets would shut down in full.  Some will just default and morph into true physical markets in the absolute worst case.  Could silver and gold be at $10 and $900 per ounce respectively under that scenario?  Yes, it’s possible (but unlikely given that we’re already well under the cost of production).
       
      Markets make a habit of humiliating dogmatists. 
       

  8. Eric
    I followed Mikey’s notes about ABM AMRO and the facts behind the gold story  He provided me/us with the letter outlinging what happened and the the smaller bank took over their gold book. It was compelling and I trust his data on that story.
     We have not had any more conversations about this since then,  with the exception of Mikey reminding of this when I noted the ABN AMRO (BAN MOAR GOLD) story in anotherone of my smart ass posts about this bank. 
    Nonetheless, like Cleopatra, ABN was not able to shake the taint of other  actions just like Cleo, the  Queen of Denial was not able to shake all the stuff with Caesar and Mark Antony.
       ABN is now a shell of its former self due to very bad management amongst other sins of the bankster class.  It’s not even relevant to the big picture except as that footnote of their being the first to refuse physical delivery.  That story will retain its potency long after ABN disappears from this earth.

    • @mikeyj80@AGXIIK
       
      OK.  I just went back and found the original thread where all this was discussed, including the letter that Mikey posted.
       
      Mikey, if you’re reading this, I’d like to return to this debate.  In the very least, this looks like a slow motion default over the course of about six months, hidden from view.  What do I mean?  Well, place everything on a timeline and think like a criminal for the sake of discussion. 
       
      In 2012 Deutsche Bank tells clients use of Hollandse Bank Unie (HBU), acquired from ABN-AMRO, will no longer offer allocated gold servicing come April, 2013.   Meanwhile, three months later, ABN-AMRO gets around to telling their clients in a letter that April 1st, 2013 is dead-day, but they can turn to UBS as a contracted provider of questionable allocated offerings (click here for discussion of 70%-ish allocation “guarantees” out of UBS, which isn’t allocated storage regardless of what UBS wants to claim).  So, technically, the ability for an ABN-AMRO client to use HBU throughout that roughly six month window was available (but probably not tested that much so who the heck knows).  Why was it that ABN-AMRO only issued notice of the change well into 2013 and so near to the April 1st deadline?  Did ABN-AMRO issue an earlier notice?  If not, at best, we’re dealing with a questionable level of fiduciary responsibility at a level that’s potentially legally actionable, and ABN-AMRO would certainly know that (but perhaps wouldn’t care given that they were on the ropes with the Dutch government?). 
       
      To me, this still looks like a coordinated effort between ABN-AMRO and DB to keep clients calm and to inspire bogus confidence so as to not trigger a run on allocated storage.   While it’s true that we can’t prove outright default definitively given the PR arse covering going on, I have a hard time not concluding that this was in the least a slow motion “soft” default.
       
      Educate me.  What do I have wrong?
       

    • @Flying_Wombat,
      You’ve done a lot more research on the dates than I did.  I was not able to find any dates on the initial notice that ABN gave to clients but also haven’t looked to hard.  My guess is that if their client list was small as they suggest, it will be hard to track down.
       
      Also agree that owning rights to 70% of your allocation is not allocation!

  9. I think you are spot on with this Eric.
      If there is  one thing I know it is bankers. When the regulations are few and times are good, bankers will stretch their lending to the max and their fiduciary limits to the lowest demonimator.  Bankers are some of the more irrational people around.  Often poor at math but greedy to a factor that would make most people gasp.  They will run with the good times, loose regs and easy money until their banks implode when the exponential growth,  seen through the ridiculous world view created by their distorted rose colored glasses crashes down. 
    I have seen scores and scores of banks fail in my 33 years in this industry including two of the nation’s largest regionals, HQ in San Diego   Great American and Home Fed. Both imploded due to the S&L debacle.  C Arnolt Smith used US National Bank as his cookie jar in the 1970′s.After his inside dealings and Ponzification of his bank, he went to jail for quite some time and his family was destroyed through 3 generations by his greed and stupidly. 
    Bankers are almost always, to the man or woman, afflicted with the Ponzi gene. Their present loans are made with the prior depositors funds and the newest loans are made with the last depositors monies. As with Ponzi, the newest depositors are the ones effected the worst when a banak fails. That goes ditto for the shareholders. They play their personal piggy banks for all they are worth, trying to skirt the laws, maximize a buck, working off thin margins to juice returns, peddaling for all they are worth to stay ahead of the next economic downturn.
    The reason the jails are not filled with banksters is that the politicians are nothing more than high prices strumpets and contribution whores who are not just in bed with banksters, they are often one in the same. 
    Yes, we once had bankers who were prudent in lending; decent people in the community who could be trusted, more or less, to do the right thing.
    But here is the one element that separates them, past and present, from most people. 
    When their asses are in a crack, profits are imploding, liquidity is draining, Feds come a’calling,loans are failing and the bank is teetering, these same pillars of the community will lie like rugs. They have the ethics of a tape worm.  The funniest thing I ever saw on Max Keiser what his imitation of Jamie Dimon, the tape worm.  It was perfect and perfeectly hysterical.
    First off, their enormous egos, directly proportionate to their lack of moral fiber, will not allow them to admit they screwed up with the bank capital, stockholder equity and ownership, depositors trust and the government’s requirement that they exercise prudence in their actions. The FDIC insurance is little more than a protection against stupid banker pet tricks.  It is a fraud and false front, meaning little in the present day scheme of things.  There is maybe $50 billion in the vault for $10 trillion in deposits. 
    So in the end they are careerist short termers, hoping that they can move on, move up, sell out or find another bank or industry before the jigjog is up, the music stops and the powers that be stop looking the other way.
    In the final analysis, as my boss said to me when I took my position with the Bank of  *********–’Stay away from the teller line and the vault’  He knew I was bad at math and as far as the tellers went, it became apparent that men higher than me in the pecking order had first dibs on that happy hunting ground. This was sort of the banker’s version of Prima Nocte.   He also knew my rep as a skirt chaser and wanted me to concentrate on making money for the bankers.   The customers??? Not so much.   But you know that good old line.  Where the customers yachts?  Not.
    So as for BAN MOAR, ING, DEXIA and the other Waffle Country banks, at the present time they are not worth a bucket of warm spit. 
    So much for my long winded post agreeing with your surmise about ABN AMRO

    • Now that was an epic rant.  :-) As you knew before you even typed the first letter, I prettty much share your sentiments.  But we’re still left with questions, not answers, regarding this ABN-AMRO default. 

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