Latest from Brien Lundin
Friday, May 30, 2014

Is this the end of “paper gold”?

China Moves To
Take Control Of
World Gold Market

The world’s largest gold producer and buyer
pulls the curtain on their plans to dominate
the global gold trade.

Dear Abe,

Regular readers of this newsletter already knew that China was driving the bus in the gold market.

By virtue of the simple fact that the nation is already absorbing the majority of the world’s newly mined gold, China is determining who is going to own the world’s real wealth going forward.

They are setting new records for both supplies and demand. Unfortunately, they aren’t setting the price, which continues to be dictated by Western speculators on the futures exchanges.

That may be coming to an end, though, as China has announced that it is launching a new global gold exchange in Shanghai — specifically to give the nation a greater say in determining pricing for the yellow metal.

Big international banks, including HSBC, Standard Bank, Standard Chartered and Bank of Nova Scotia, are being invited to participate, and plans are being laid to also invite foreign brokerages and producers.

The new exchange will be an outgrowth of the Shanghai Gold Exchange, which quickly vaulted from a standing start to become the world’s largest physical gold exchange over the past few years. The new trading venue will focus initially on spot physical contracts before expanding into derivatives.

If past form holds true, this new exchange will eventually overpower both New York and London as the focus of the global gold trade, especially as the London fix is being wound down and gold trading on the COMEX has come under fire for being manipulated by bullion banks and government agencies.

As a result, China’s new gold exchange will have a growing influence on the price of gold, and mounting Asian demand should begin to finally propel the yellow metal higher.

In fact, influencing the gold price is a stated goal of the new venture. Reuters quotes Jiang Shu, an analyst with one of the 12 banks licensed to import gold into China, as saying “If you don't allow foreign players to participate in your market actively, or do not push Chinese financial institutions to participate in the international market, then China's strong gold demand is only a number, not a power.”

I’ve suspected that the sudden, massive surge in Chinese gold buying last year — which came just as the price was smashed by a coordinated selling effort on the Western futures exchanges — was no coincidence.

Some have speculated that China helped orchestrate the gold-price take-down, or did so in concert with Western authorities.

The motive from the Western side would have been to rescue the bullion banks, who had accumulated mountainous short positions after many years of leasing central bank gold. Or, the goal was to rescue the U.S. Treasury, which needed to find cheap gold to repay Germany for the reserves that had supposedly been in our safe keeping. Or both.

The motive from the Chinese side would be to build up its gold reserves, either officially in the national account or simply in the hands of its citizens, by buying up gold at a discount.

While I don’t dismiss the possibility of such an extended conspiracy, I lean more toward a simpler explanation: I think the Chinese just took advantage of an unintended gift from the Western speculators.

The speculators drove down the price, and China jumped on the opportunity to build their gold reserves while the metal was on a clearance sale.

Regardless, the grand plan is for China to build up real wealth, via gold, at the same time that Western nations are destroying their wealth through relentless growth in debt and fiat currency.

If someone’s going to be pushing down one side of the see-saw, you might as well ride the other side upward.

It may be a stereotype, but the Chinese don’t have short-term strategies. Whatever their plan, it is something that will be in place for many years. It obviously involves the acquisition of lots of gold...and now in having some control over the global market.

I wouldn’t bet against them.

We’re entering the typical summertime slowdown for gold and mining stocks, so it’s easy to forget the long-term view. My advice is to stay focused on the big picture, and buy gold for the same reasons China is.

And speaking of the big picture, we’ve just received the final itinerary for the blockbuster Money, Metals & Mining Cruise, featuring Dr. Marc Faber, Doug Casey, Peter Schiff, Mary Anne and Pamela Aden, Rick Rule and myself as your all-star cruising companions.

I’ve attached the details below — and they are spectacular, as you can see.
I think the metals and mining markets are going to be roaring by next January...and regardless, the knowledge gained from mingling with these world-renowned experts will be worth many times the price of attending.

I urge you to review the exciting itinerary below, and act now to come along with us!

All the best,

Brien Lundin
Editor, Gold Newsletter
CEO, the New Orleans Investment Conference