Technical Trading: China Voracious and Hungry For Gold, A Yuan-Backed Gold Standard?

Originate:本站　Date:2012-09-25

Kira McCaffrey Brecht
(Kitco News) - Mon Sept 24—Comex December gold futures are consolidating quietly Monday morning, as the bulls pause to catch their breath just below the $1,800 per ounce level. The chart pattern remains bullish and the current developing bull flag targets potential gains to the $1,840 level.
The U.S. political season continues to ramp up into high gear, ahead of the November presidential election. While there has been some discussion about a commission to study a return to the gold standard under Republican leadership, some analysts shift the view to China and its on-going and voracious appetite for gold.

Currently, China is seen as the world's number one (or number two depending on whose figures you believe) gold producer, followed by Australia, the U.S. Russia and South Africa.
Pete Grant, chief market analyst at USAGOLD notes that all the gold currently mined in China is "going right from the ground to the PBOC. Not an ounce hits the market. "

Don't forget that China is sitting on the world's largest pile of cash or foreign exchange reserves at roughly $3 billion. Compare that to the U.S. federal debt of $16 trillion and roughly half a trillion in gold reserves.

According to latest World Gold Council data, the U.S. remains the top holder of gold in the world at 8,133.5 tons. China is in sixth place with 1,054.1 tons, says the World Gold Council. While the U.S. holds 75.4% of its reserves in gold, China holds 1.7% of its reserves in gold.

David Beahm, vice president at Blanchard & Co., a New Orleans based precious metals investment firm points to the U.S. $16 trillion debt and says "the dollar has been falling. The dollar is the world's reserve currency. If we were to lose the world's reserve currency status, then the dollar falls drastically, we become a liability, our ratings fall even more, which requires the  U.S. to pay more interest. It's a scenario that would be catastrophic for the dollar and the U.S."

Beahm brings up the possibility of a sort of hybrid gold standard for the U.S., or one in which perhaps 25% of the current dollars in circulation are tied to gold as a "way to give the dollar some sort of protection. It can only lose this amount, because it is backed by gold," he said. Whether or not this could become reality depends on many things, including politics in the months and years ahead.
But, Beahm also notes that while the "U.S. has 75% of its reserves in gold, China has 2% of its reserves in gold. China has been actively buying gold. Are they ready to peg the yuan as soon as they have enough?" he said.

"If they flip flop and start liquidating dollars and euros in order to buy gold, which they would then use to back the yuan, nobody would want our [U.S.] debt. They could secure their currency and make it more attractive to deal with the yuan when you are trading oil," said Beahm.

"If the U.S. all of a sudden said we are selling 8100 tons of gold, the Chinese would snap that up. The Chinese are active buyers, anytime anyone liquidates gold, they are ready to buy," Beahm said.
Grant's USAGOLD added that "gold will continue to be viewed as increasingly important reserve asset, driven by the emerging world trying to bolster their gold reserves. China, Russia, Mexico, Korea—all these central banks have been buying gold."    

Grant pointed to the recent chatter about the Republicans appointing a commission to study the gold standard and said "it is raising the level of the conversation. People are asking themselves what do they mean. Why are they talking about gold," Grant said.

"The individual investor is so ill informed about what is actually going on," Beahm warned.
Grant added "if you realize that central banks around the world have been increasing their levels of gold reserves you say maybe I need to get a little gold too. That can be very significant," Grant concluded. Looking ahead, Grant remains bullish on gold and he identified a technical measured move objective in the $2,300-2,400 range for gold.

While speculation of the Chinese shifting to the gold standard may well be just that—speculation, the numbers beg the question—who is in a better position to fund a currency backed gold standard—the Chinese or the U.S.?
Food for thought.