Posts on Sharps Pixley: Tubthumping gold and; Chinese Gold Reserves: Playing the old game

I posted the two articles following on the Sharps Pixley website yesterday and are reproduced here in a lightly edited form:

Tubthumping gold

Those of us who remember 1990s pop music may well recall the Brit anarchic rock band Chumbawumba whose one major hit was called Tubthumping.  Its refrain, which actually comprised most of the song was the repeated over and over – ‘I get knocked down but I get up again.  You are never going to keep me down.’ which could well be the anthem for the gold price in recent months.

A gold ‘knockdown’ happened again yesterday (*th August) when gold appeared to be in freefall once more just after the New York market opened, but the extremely sharp drop, which took it down over $10, in a matter of minutes, managed to reverse itself yet again and the yellow metal managed to end the day just about where it had started – at a little over $1,260 and so far today (9th August) has moved upwards further – to close to $1,270 at the time of writing, although some of this overnight increase will have been due to increased geopolitical tensions involving North Korea.  Since then it has risen to breach $1,280 although this could be reversed once New York opens.

If these ‘knockdowns’ had happened just the once one could put that down to normal trading with data driven gold being spooked by occasional bouts of adverse news. But this keeps on occurring.  The drops and flash crashes have nearly all been very steep indeed, which does suggest some kind of external influence putting big paper transactions into play. But each time gold has made a recovery mostly back to prior levels, although the overall effect of the knockdowns may well have been to exert a kind of price control.

The strange recent big sales out of America’s GLD, the world’s largest gold ETF, when no similar sales seem to have been made out of IAU – America’s second largest gold ETF – also look as though they may have been designed to keep the gold price under control.  The fact that these appear to have had little impact in actually depressing gold prices, but may have well helped prevent price rises in the light of continuing strong Asian demand for physical gold, could well suggest that gold is building up strength for an upwards breakout.

The anticipated fall-off in Indian demand after the pre-GST restocking is reportedly not taking place – at least not to the extent analysts had expected – and Chinese demand appears to be holding up to, or slightly bettering, last year’s levels.  These facts, coupled with a small decrease in new mined supply, suggest the portents gold has the potential to again threaten the $1,300 level through the rest of what is normally a weak northern summer.  The American Labor Day holiday (Sept 4th this year), which is traditionally the end of the North American summer holiday period, often seems to be a game-changing date for the gold price.  It will be interesting to see what is in store for us in this respect this year.

For those interested here’s a link to youtube of Chumbawumba’s appearance on the David Letterman show: Chumbawamba – Tubthumping (Live at David Letterman Late Show)

Chinese gold reserves: Playing the old game

According to its reporting to the IMF, China has now not officially added to its gold reserves for nine months in a row.  Indeed these gold reserves have remained static, as far as official disclosures go, ever since the yuan (renminbi) was admitted as a constituent of the IMF’s Special Drawing Right in October last year.  Prior to that the country had been reporting monthly increases to its gold reserves from July 2015, apparently in the interests of transparency – but before that had only reported increases at five or six year intervals in the meantime keeping up the pretense of not adding to its reserves at all on a month-by-month basis.  It definitely looks as though, now that the yuan is a constituent part of the SDR any suggestion of even limited transparency in China’s gold reserve building process has again fallen by the wayside.  Secrecy reigns.

China achieves this by holding gold in accounts it says it does not need to report to the IMF rather than within its official Forex Reserve figures.  Given the nation’s often-stated affinity to gold’s role in any global financial restructuring which may lie ahead it indeed seems highly unlikely that the country is not again surreptitiously adding to its gold reserves.  Indeed it poses the question as to whether what it has been reporting as its total reserve figure is in reality in any way representative of what it truly holds in gold in terms of its total gold reserve.  Mind you this policy could well apply to other nations too as most national gold holdings are not audited on any kind of consistent basis.  The IMF relies totally on what its constituent nations tell it – it does not check their accuracy.

Many believe that China’s ultimate aim is to hold more gold than the USA does – officially reported at 8,133.6 tonnes.  China’s current reported total gold holding is 1,842.6 tonnes, but few believe that this is the true total with estimates out there of a realistic total of 4,000 tonnes or even higher.  If the 4,000 tonne estimate is correct then that would put China in second place among national holders of gold – more than Germany, currently in second place, which reports some 3,374 tonnes (For the latest reported world gold holdings click on WORLD OFFICIAL GOLD HOLDINGS).

For example – re. Chinese holdings, a recent note on that country’s www.globaltimes.cn website stated: ‘Although the People’s Bank of China (PBC), the country’s central bank, has not publicly disclosed plans to increase gold reserves since October 2016, some market analysts, based on calculations on domestic gold output and imports in recent years, estimated that the country’s above-ground gold reserves totaled 20,193 tons as of June, according to a report published by domestic industry website cnfol.com over the weekend.  While about 16,193 tons of gold are owned by Chinese citizens, the remaining 4,000 tons are held by the country’s central bank, said the report.’

While such figures are only analysts’ estimates, it does indeed seem likely that the nation’s gold reserves are higher than officially stated – almost certainly substantially so, but whether they are double the current figure , or several times this, remains conjecture until China comes clean with an  accurate figure.

There has been the suggestion that China is not announcing its true gold reserve figure, nor any monthly build-up, with a view towards not boosting the gold price, which might rise substantially if it were to do so, in order for it to keep on buying at what it sees as relatively low prices in an ongoing process of reducing the US dollar component of its forex holdings.

It may also, though, have an interest in not knocking the gold price back due to the reported holdings by Chinese citizens (see above) – it may well thus have an agenda to control the price on their behalf, but without letting it rise uncontrollably for the time being – but also not allowing it to fall back – as it continues to work towards a build-up in domestic demand as its main economic driver, rather than continue to rely on exports to keep the wheels of its manufacturing sector turning.

As a fully state-controlled economy, and as the world’s biggest known producer and importer of physical gold China does have the power to control the gold price if it so wishes to.  If it sees a potential domestic benefit in allowing the price to rise and thus boost the wealth and the spending power of its gold-holding citizens it is well capable of doing so.  Yet another possible factor in the gold price manipulation theories that abound.

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