JIM RICKARDS: CHINA IS IMPORTING GOLD SECRETLY USING
The Inteligencia Financiera Global blog
(Global Financial Intelligence Blog) is honored to present
an exclusive interview with economy world expert Jim
Rickards. Jim is the author of the bestseller “Currency Wars:
The Making of the Next Global Crisis” and the forthcoming,
“The Death of Money: The Coming Collapse of the International
He is a portfolio manager at West Shore Group and a partner
in Tangent Capital Partners, a merchant bank based in New
York. He is an advisor on capital markets to the U.S.
intelligence community and the Office of the Secretary of
Thanks for accepting this interview.
Jim, as you know, China is now the world’s largest consumer
of gold. While the WGC states that its “record” demand in
2013 was only 1,065.8 tonnes, the China Gold Association
estimates “gold consumption” was 1,176 tonnes. On the other
hand, several pundits like Koos Jansen say that the real
China gold demand was much more than 2,000 tonnes last year.
Who should we believe?
– There are many estimates of official and non-official
accumulation of gold in China. The truth is that no one knows
the exact number because China is non-transparent about the
total amount of gold coming into the country and its own mining
output, and it is not-transparent about how much of that gold
goes for personal acquisition and now much to government
reserves. So, all analysts, myself included, are working with
imperfect or incomplete information.
We do know that some gold comes into China using military
channels and is not reported to any authority. As a result,
even the best estimates may be too low. The best guide is to
assume China has some target in mind, probably 5,000 tonnes or
higher, and will continue to accumulate through diverse channels
until that target is reached. My estimate is that China will
announce it has over 5,000 tonnes of gold in early 2015.
It probably has at least 3,000 tonnes today.
Why is China buying such big quantities of gold? Is Beijing
preparing for the collapse of the fiat monetary system? Do
they want to replace the USD with yuan as a reserve currency?
– China has no prospect for replacing the USD with the yuan as
a global reserve currency. This would require China to open its
capital account, which it does not want to do. It also requires
a good rule of law and a deep liquid bond market with financing
and hedging instruments, which it does not have. So, the yuan
will not be a reserve currency for at least ten years, possible
longer and the Chinese know this. The reason China is acquiring
gold is to hedge its exposure to dollars. China actually wants
a strong dollar because they own over $3 trillion in dollar
denominated paper they cannot dump. If the U.S. inflates and
devalues the dollar, gold will go much higher in price.
Whatever China loses on its paper due to dollar inflation,
it will make up on its gold profits. So, China is hedging
dollars with gold. Other investors should do likewise.
Gold is going from West to Far East, that’s a fact. It seems that
the “developed” economies are being left only with paper “gold”.
Could this lead to future war tensions between China and Russia
on one hand, and the US, Europe and Japan on the other?
– Gold is certainly moving quickly from vaults in the U.S. and
Europe to as those maintained by the COMEX and the GLD ETF, in
the direction of vaults in China including those of the
government. Much of this gold passes through Swiss refineries
where it is melted down from 400-ounce bars of 99.90% purity
and re-refined and recast into 1-kilo bars of 99.99% purity.
When gold moves from west to east, there is no change in the
total stock of gold, but there is a reduction in the floating
supply since COMEX and GLD gold is available for trading and
leasing whereas China’s official gold is not. This implies a
gradual unwinding of paper short positions in gold, because
there is less physical available to support the paper trading.
In turn, this supports a higher price for physical gold.
A higher price for gold means a low value for the dollar when
measured in gold. This will increase tensions
between China and the U.S. Tensions are already high between
China and Japan over the South China Sea islands, and between
the U.S.and Russia over Ukraine. Taken in combination, the
potential for a mistake or escalation resulting in actual warfare
prompted partly by increasing gold prices is growing more likely.