China Is Hoarding Gold: Your Chance To Be Ahead Of The Next Big Gold Story…
Today marks your chance to be ahead of the next big story in gold.
Although this story isn’t new — as you may recall we covered it back in September of last year — the urgency behind this up-and-coming gold trend is mounting.
More important is the inherent buying opportunity it presents…
All the info you need to get caught up on this story can be summed up in four words: China is stockpiling gold.
Today, I’ll show you how I see this strategic move unfolding — highlighting year-end statistics out of Hong Kong. Better yet, you and I can look at a few specific scenarios that will lead to a sea change in the gold market.
According to the Financial Times, “China’s gold imports from Hong Kong more than [tripled] in 2011 from the year before, hitting a record 428 tonnes as savers flocked to the yellow metal as a hedge against inflation.”
The demand statistics noted by the FT are China mainland imports from Hong Kong and represent demand from individuals and institutions, but NOT the official government holdings.
The year over year statistics tell an interesting story. Since 2010, imports increased 309 tonnes (from 119 to 428 tonnes.) Compared with years prior to 2010, 2011 was simply off the charts.
In short this means that mainland China is betting big on gold. But the intrigue doesn’t end there… This big buy in gold makes you wonder, where’s all of this gold going?
Yeah, sure, the gold is said to be going to individuals, businesses and institutions. But the way I see it, there’s soon to be a direct connection between these inflated imports and an official announcement from the Chinese government of shockingly-high holdings.
There are two ways this could be setting up:
- The Chinese are funneling inventory secretly through Hong Kong imports to increase official government holdings later down the road. Thus, a hefty percentage of that 428 tonnes is sitting in a “stealth” holding pot.
- Individual Chinese citizens are being urged to buy gold as an inflation hedge (which the government has all but decreed a certainty). And later down the road these individual holdings will be nationalized for the greater good of the country. Thus, all 428 ounces in 2011 could be considered official Chinese holdings.
Keeping this news in perspective is the key to this investment idea. China, as we’ve said in these pages before, is a strategic nation. The last official gold holding statistic announced by the government was in 2009. At that point China announced a dramatic 75% increase in its gold holdings since the prior announcement (six years earlier in 2003.)
But China’s next announcement will be a much bigger deal. Back in 2009 the announcement was a subtle splash in the gold market. The next announcement will be a sea change.
The way the numbers are setting up, China could be stockpiling A LOT of gold.
According to the industry watchdog Mineweb “China produced a record 360.95 tonnes of gold in 2011, up 6 percent on the year. The country’s gold demand could exceed 800 tonnes, after factoring in the Hong Kong imports.”
See, not only are Chinese imports from Hong Kong rising at an alarming rate, China is also the world’s largest gold producer. This gives the Chinese a one-two punch that no other country could replicate.
Just using back of the envelope math, here’s how I see it playing out…
Say China is hoarding 600 tonnes of metal a year (yes I understand this is a large percentage of the Mineweb estimate of 800 tonnes.)
So, 600 Tonnes in 2009, 2010 and 2011. That puts the total “stealth” holding at 1,800 tonnes.
I’d also add in a special “strategic” multiplier of, say, 30%. This strategic multiplier could be something that happens closer to China’s announcement maybe a substantial gold buy from the IMF or another large gold holder.
With that multiplier added in, the total stealth holding is bumped to 2,340 tonnes (which would be added to the current official holdings of 1,054.)
…That’s if China were to make an announcement today.
Thinking out loud, that would put China dangerously close to Germany’s gold holdings — Germany is currently the 2nd largest holder of gold in the world with 3,396 tonnes.
Thinking out loud again… I’m falling more in love with this assumed scenario (I’ll even go on record saying the next time China makes an official announcement their holdings will be right around 4,000 tonnes.)
An announcement of that caliber would rock the gold world. With a rounding error, China could leapfrog to 2nd on the list of world gold holdings.
Right where they’d love to be, right? Second only to the U.S. in gold holdings. China would gain a respectable foothold in the international currency market while not imposing a direct threat to their strategic relationship with the U.S.
All said, this trend is creating a solid buying opportunity for you in the gold market. You can’t ask for much more than that as a resource investor.
And although this trend isn’t enough to keep the price of gold aloft on its own — it should add considerable bullishness to the market for as many months as it takes China to make its next big announcement…
Keep your boots muddy,
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