China Goes Gold Crazy

[pmbug]

China on pace to import 2,000 tons of gold in 2014. Also, silver trading on China's commodity exchanges are in backwardation:

http://www.ingoldwetrust.ch/chinese-gold-demand-694-mt-ytd-silver-in-backwardation

 

[rblong2us]

So if the Chinese have been using their gold to create multiple loans, what effect will it have if / when this scam unwinds ?

from - http://www.zerohedge.com/news/2014-...hinas-rehypothecation-evaporation-goes-global

From a commodity market perspective, financing deals create excess physical demand and tighten the physical markets, using part of the profits from the CNY/USD interest rate differential to pay to hold the physical commodity. While commodity financing deals are usually neutral in terms of their commodity position owing to an offsetting commodity futures hedge, the impact of the purchasing of the physical commodity on the physical market is likely to be larger than the impact of the selling of the commodity futures on the futures market (ZH: unless of course momentum algos take offsetting commodity futures hedge selling in, say, gold and boost, or "ignite" the downward momentum to a far greater degree than the offsetting physical buying, making a recursive pattern whereby buying physical ends up resulting in a lower physical price as has been the case with gold over the past year). This reflects the fact that physical inventory is much smaller than the open interest in the futures market (Exhibit 9). As well as placing upward pressure on the physical price, Chinese commodity financing deals ‘tighten’ the spread between the physical commodity price and the futures price

 

[pmbug]

Spoke to head of global commodities trading at LBMA bank. He expects a #gold "demand shock" from #China credit crisis. May be game on there.
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Liberty For All ‏@LibertyisLife Jun 11

@JamesGRickards Please elaborate on "game on there". Also, don't c connection btwn demand 4 gold & credit crisis. Seems counter intuitive.
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Jim Rickards ‏@JamesGRickards Jun 11

@LibertyisLife Chinese can't buy foreign stocks, hate local stocks, banks pay nothing & property's the crash. In crisis, #gold's only choice

Jim Rickards ‏@JamesGRickards Jun 11

@LibertyisLife "Game on" means things have started to play out in visible ways.
...

https://twitter.com/JamesGRickards/statuses/476724975202607104

 

[ancona]

While not an expert by any stretch of the imagination, I do have an opinion for what it's worth. I believe the tip of the iceberg has been spotted by the Chinese as regards hypothecated/re-hypothecated/re-re-hypothecated hard assets. I would hazard a guess and say it's off to the races by every financial interest with this type of paper. Were I to loan money based upon ownership of some copper or something, I would want that copper in my own facility under the watchful eye of myself or trusted partner/employees. That said, a lot of dodgy shit has been going on in China for a long time now, and I firmly believe that the largest portion of their private wealth is built on a foundation of marshmallows and will topple at some point soon. Folks over there are not big on getting ripped off, so I think once the contagion spreads, if the government does not step in to stop it, there will be all out panic just like we had here. Only this time, it will be on a scale that China will be hard pressed to do anything about.

 

[Unobtanium]

And then also thrown the idea that the Russian population may too someday jump on the gold wagon. At the moment they are fairly unenthusiastic about gold:

http://www.24hgold.com/english/news...90&redirect=false&contributor=Jeff+Clark&mk=1

 

[pmbug]

According to the SGE reports published every friday on the previous trading week, Chinese wholesale gold demand year to date, as measured by SGE withdrawals, came in at 998 metric tonnes at the end of July 11 ...

http://www.ingoldwetrust.ch/chinese-gold-demand-998-mt-ytd

 

[rblong2us]

.........I think once the contagion spreads, if the government does not step in to stop it, there will be all out panic just like we had here. Only this time, it will be on a scale that China will be hard pressed to do anything about.

Luckily the Gov did step in :flail:

http://www.zerohedge.com/news/2014-...gets-last-minute-bailout-avoids-chinas-second

 

[Unobtanium]

Speaking of voracious appetites, China is sucking up production from Australia:

http://srsroccoreport.com/austraila...s-two-thirds-of-its-gold-production-to-china/

 

[Unobtanium]

We all know that China's "officially reported" gold reserves of about 1000 tonnes is a farce.

Here is a more realistic recent estimate from Koos Jansen:

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