HONG KONG (MarketWatch) -- China has added to its gold reserves and now holds 1,054 metric tons of the yellow metal, according to a Friday report by the Xinhua News Agency, which cited comment by Hu Xiaolian, head of the State Administration of Foreign Exchange.
Hu said that China's gold reserves had risen by 454 metric tons since 2003 and that the total was being reported to the International Monetary Fund as per the organization's rules.
A Dow Jones Newswire report said the figure cited was nearly double China's reported gold reserves as of the end of last month, but noted that it wasn't clear which gold reserves Hu was referring to.
She said China's gold reserves now rank fifth in the world among nations which publicly disclose their holdings.
Analysts said China bullion buying reflects efforts to diversify their nearly $2 trillion stockpile of foreign exchange reserves.
"Chinese officials have been increasingly vocal about their concern on the U.S. dollar and the U.S. bailout policies of late, and have actively been seeking to diversify into other assets, especially commodities," said Martin Hennecke, an associate director with Tyche Group in Hong Kong…
I have telling you all along that China has been accumulating gold. If China announced that they increased 454 tonnes in 6 years, it is my bet that they have accumulated over 800 tonnes to hold 1400-1600 tonnes of gold. It is not in China's interest to tell the truth of their gold holdings. They are on record that they wish to hold 5000 tonnes of official gold reserves!!
China's mining boom started slowly in 2003 where they mined 100 tonnes of gold. Almost all of this gold went to start China in their jewellry demand. From 2004 to 20007 China mined approximately 120 tonnes of gold each year which fed its fledging gold retail market. In 2008-2009, they increased their tonnage of gold to 280 tonnes. Probably 140 tonnes of that went to the jewellry business and 140 tonnes to reserves. China exports zero gold.
We can assume that China has bought at the very least, 454 tonnes minus 140 tonnes or 214 tonnes of gold on the open market or about 18 tonnes per month. We have seen Russia report purchases of 13 tonnes of gold per month. ( Ecuador and Venezuela central banks have also purchased large supplies of gold).
The world gold council now has a severe problem. They balanced demand and supply and now this 454 tonnes came out of nowhere. Since the newly minted gold is constant and known at around 2400-2600 tonnes per year, the added demand from China must be balanced with a supplier of that gold.
We see demand for gold rise as evidenced by the huge rise in the gold ETF GLD. They have increased their 'inventory' from zero in 2004 to 1127 tonnes now.(I am not convinced that they have this inventory) Yet the world gold council still lists all the countries with their gold. As of Thursday, the WGC lists all the world and the IMF with 29,600 tonnes of gold as reserves.
What country or what countries have supplied this tonnage of gold to the GLD, China, Ecuador , Venezuela and Russia? The supply/demand equation is now full of holes!!
The following is Bill Murphy's understatement as to the significance of the announcement:
Please remember that the bullion banks are short somewhere around 16000-20,000 tonnes of gold. Now that China has gold on its shores this gold will never come back. These bullion banks have a big headache.
You now have countries not favourable to the usa gobbling up any gold offerings. It will now be very difficult for cartel members to bomb paper gold if they suspect that China and or other countries will buy all that they offer and convert that paper into real gold.
Yesterday, the dollar tanked but also the bonds fell badly. Usually that is a harbinger of trouble.
The long bond fell to 124.62. A drop to around 116 will break JPMorgan.
Lets go to other news of the day:
The usa released details on the stress tests. They indicated that the banks need around 1 trillion dollars of new capital.
I thought that the banks had good income in the lst quarter and they were on their way to recovery.
Here is the report:
Here is the opening paragraph of the white paper on the stress tests released by the Fed:
Home prices continue to fall. This is the security that banks hold and this security is dropping like a stone:
Ed Hadas writes:
Is the worst over? Investors seem to think it is. Confidence that the crisis is winding down has been mounting.But the right answer to the question depends on what "worst" is meant. Appropriate replies include: probably, yes but so what, not yet, probably not, and let's hope so.
By Edward Hadas, breakingviews.com
Last Updated: 3:28PM BST 22 Apr 2009
The worst of the credit squeeze is probably over. True, loan losses are still increasing. But the official aid is massive: minimal policy interest rates, ample liquidity supplies, capital injections and implicit loan guarantees.
The aid from above has helped push dollar interbank borrowing rates down in the last six weeks. The cost of insuring against corporate failure in the credit default swap market has also fallen by 0.5-0.7 percentage points to about 1.9 and 1.6 percent annually for the main US and European investment grade CDS indexes. Improving bank credit has contributed to this trend. Better credit all round means more loans will be refinanced, so fewer companies will go under than would otherwise be the case.
The big official liquidity push also gives investors more cash to put into the markets. The additional buying power may account for some of the sharp increase in oil and equity prices. There have also been tentative signs of revival in the junk bond and IPO markets. To some extent, the mood is following the money.
It may be due to government help or it may just be the passage of time, but another worst that has probably passed is in the pace of economic decline. The huge sudden drop in activity after the collapse of Lehman Brothers last September has already become something of a business legend. If the decline had continued at that pace, economies would be back to the Stone Age in a few decades.
It's not going to be that bad. Globally, exports are down 30pc since last July, according to Lombard Street Research. But the pace of decline is moderating. Similarly, US housing starts, which have declined by 75pc since the 2006 peak, may have reached their low.
The balance of indicators still suggests GDP is falling in most developed economies, but at a much less dramatic rate than a few months ago. When the economy is only declining at a moderate pace, some measures typically suggest that growth is returning - the much talked-about "green shoots" - but more show further decline. That seems to the case now.
Inventories complicate the picture. A sharp decline in global demand led to an even sharper reduction of inventories as retailers and manufacturers cut back. As the inventories are rebuilt, production will most likely pick up faster than consumption.
So yes, all in all the economy isn't shrinking as rapidly as it was. But so what? It's still shrinking. On that yardstick, therefore, the worst isn't yet over.
Now look at another measure of "worst": unemployment. Even when growth does return, recovery is likely to be anaemic. It will take time to absorb the excesses built up during the credit boom, from houses in the US to too many Chinese factories making cheap goods.
What's more, it's not as if all that private-sector debt has gone away.
The rise in savings rates in the US and elsewhere isn't going to be a one-quarter wonder. This means that the peak in unemployment could easily be two years away.
And will that then be the end of the pain? Probably not. The crisis will leave government balance sheets shot to pieces. The best case scenario is that the authorities manage to suck all their fiscal and monetary stimulus out of the economy safely once economic growth has bottomed out. Then all that the world will suffer is high taxes and slow growth.
But there is a risk that this outcome proves too unpopular and that the authorities instead take the current fad for "quantitative easing" to the extreme - and just print money to finance their deficits. The outcome would then be inflation.
An inflationary outburst might even lead to another sort of financial crisis - a loss of confidence in key currencies. That could be worse than anything seen up to now.
Can such a dire outcome be avoided? Let's hope so.
We have seen the Federal Debt remain at 11.19 trillion dollars despite the tax recenue receipts. This does not bode well by the government. They are in need of 3.8 billion dollars per day.
The usa budget originally called for spending of 3.6 trillion dollars. With the economy slumping and with the newly added expenditures of unemployment benefits, it looks like spending is heading for 3.9 trillion dollars.
Tax receipts etc are heading for a figure below 2 trillion dollars. Lets say it settles at 1.8 trillion. This will result in a deficit of 2.1 trillion dollars.
Then we must add the new stimulus bill of 1 trillion dollars.
China is cashing in their dollars to purchase gold and other commodities. Expect another 1 trillion of foreign debt to be cashed in. The usa must finance 4 trillion dollars of debt with nobody to buy this debt.
The only buyer is the government and yet with all this QE we see bond yields rising!!.
The usa is in serious trouble.
Have a great weekend