China can't afford to let gold or silver price slump

Chinese state endorsement of gold and silver as good investments means the country can no longer afford to let precious metals prices drop by any significant amount.

LONDON - 

With Chinese state institutions hawking gold and silver to the general populace  as a good investment (see China pushes silver and gold investment to the masses) - the latest news on this front being that the biggest Chinese bank, the Industrial and Commercial Bank of China (ICBC), is setting up a special precious metals department to handle growing investor demand for gold and silver within the country, the corollary is that therefore the country cannot afford to let precious metals prices fall substantially and thus alienate millions of its citizens who have been taking state advice to buy them.

In a Reuters report the ICBC is quoted as saying ""China is the world's largest gold producer and the second-biggest gold consumer, and Chinese always have a custom to keep gold as personal wealth. China's gold market is growing rapidly and has a huge potential with the growth of individual incomes."  Surely yet another endorsement of gold as an investment by a Chinese state concern?

And China certainly has the power to manipulate the gold price in ways maybe not undreamt of by GATA which has long believed that there has been gold price suppression by western governments, central banks and financial institutions.  This time the boot could be veritably on the other foot.

The mere news that China is moving more gold into its official reserves would boost the gold price.  And the likelihood is that the country is already doing this - (see China's hidden gold purchase policy ) - it only has to let it be known officially, thus turning speculation into fact!  Even news that a relatively small amount of gold has been moved into official reserves will likely move the market in a positive direction.

Chinese disenchantment with the dollar as the world's principal reserve currency has been apparent for some time and the huge trillions of dollars overhang in the country's reserves are already seen to be being reduced by whatever means possible - notably by the Chinese Sovereign Wealth fund CIC and other state bodies buying into western resources, property and other companies it sees as strategic investments (see Chinese sovereign wealth fund dumping dollars for strategic investments like gold).  It is thus logical that at least much of the country's domestic gold production - and China is now the world's largest gold producer - is already finding its way into the state's coffers.

Recently gold has been moving up and with perceived weakness or strength in the dollar with the general consensus that the overall pattern is likely to be upwards for gold and downwards for the dollar.  But, China is likely to be a much more important mover of the gold market in the medium to longer term.  ‘Losing face' is an important aspect of Chinese psychology and if millions of investors lose out because state-promoted investment in precious metals is not borne out this would be a massive government loss of face and one which is certainly not beyond its capabilities of not allowing to happen.

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responses to this article

Good point. Conversely... ...anyone who wanted to destabilize China would bring down the price of gold, which Western central banks already had an incentive to do (bring down gold, not China). My money's on the Chinese simply because math is on their side but such . .more shenanigans may give us additional time to accumulate metal before fiat currencies start tanking. . .less by InvestorEngineer on September 10 2009, 18:15 Find this comment inappropriate? Report it

Loss of Face Ordinary Chinese investors get sucked into every bubble and lose vast amounts of money time and time again without the government needing to concern itself with loss of face. If a government pension fund loses money, that's potentially a face . .more problem; if a retail investor loses money on stocks, property, gold, or whatever, that's his own lookout and not a problem for stability as far as I can see. . .less by HK investor on September 10 2009, 23:13 Find this comment inappropriate? Report it

China Political Economy This move by China recommending and appointing ICBC as distribution point for the citizens of China to purchase gold or silver just sealed the fate of the western central banks. Nice karma for the banksters holding mega shorts on metals..... by West Texas Trader on September 10 2009, 23:27 Find this comment inappropriate? Report it

Yeah... I wonder how far Chinese are down the "buy gold" route...If they are at not very far, they would have incentive to keep the price down, whilst upholding the USD valuue, the currency they have quite a bit of. by Rogi on September 11 2009, 01:05 Find this comment inappropriate? Report it

Hold on the elevator is going up Since fiat money is primarily what is being used for transactions in the world or if it is not then the media of exchange is indexed to it.> Then is paper worth more than a precious metal. I doubt it, since precious metal can always be turned into . .more paper. Yes but try to turn old devalued paper into precious metal. LOL . .less by /Bruce on September 11 2009, 01:13 Find this comment inappropriate? Report it

Hi Lawrence Good commentary...and very well written. I have linked this story in my Friday gold commentary over at Casey Research. With best wishes...Ed by Ed Steer, Director - GATA on September 11 2009, 01:59 Find this comment inappropriate? Report it

all that glitters... So Wen is telling his billions of compatriots that the renminbi is worth less than gold? by plato on September 11 2009, 07:13 Find this comment inappropriate? Report it

Short Squeeze in gold and silver The article assumes that the Chinese may want to support the price of gold and silver so their citizenry who are being encouraged to buy metals will profit. One way to do this might be to take positions, through ICBC or otherwise, in gold and . .more silver futures on COMEX and then take delivery of the physical metal rather than liquidate their futures contracts. If physical gold, and particularly silver, are as tight as many commentators believe, this draw down of physical metal would presumably get the attention of the Bullion Banks who have such large short positions. These institutions might then get uncomfortable about their short positions and stop selling the rallies. If "normal" buying continues and the short sellers are no longer there, Guess What Would Happen. . .less by Brad on September 11 2009, 15:54 Find this comment inappropriate? Report it

all that glitters II... It also assumes, as its central thesis without which its self serving conclusion - the politburo is to 'support gold' - is confirmed a gross petitio principii, i.e. that Wen is prepared to advance to his face saving brethren that they should not . .more save in their own currency, the implication being it may be as vulnerable as others. Talk about 'losing face'!! This is inviting the loss of the entire physiognomy. This sort of illogical journalese is short-sighted at best. Wen is a politburo communist. His first aim is to see his opponent (US) eat crow. That is being achieved single-handedly by the Americans themselves. But why not help the Liberal cause along its way? He is indulging in Beijing-speak as we had Kremlin-speak in the cold war era. Chaps, look behind the mirror. Stop seeing yourselves reflecting what you want to see and hear. GATA likes the sound of the piece, so it is well written....really! . .less by plato on September 11 2009, 17:16 Find this comment inappropriate? Report it

Lets wipe our eyes I think the act of the Chinese government encouraging its people to by Gold is more to do with common sense than saving of face's. If a great portion of your countries reserves are in T-Bills and you have no control over the monetization of debt and . .more the devaluation of your holdings, then it is surely just common sense to diversify as much as possible. The Chinese government could have encouraged their people to buy barrels of oil or bars of copper. It just so happens that Gold is the most efficient means of storing wealth. No need for a shed. Just common sense. No need for price manipulation, face saving exercises or vendetta's against failed ideologies or imagined foes. . .less by Not too complex on September 13 2009, 07:26 Find this comment inappropriate? Report it

Chineese Purchasing Gold/Silver To Uphold Gold/Silver Prices: Opinions always demonstrate options, until more permanent facts structure conclusions but every trend has to have a beginning point towards triggering reactions at some point in time & that is always the nature of speculating; while unvailing facts . .more become the concreet movers of all markets. Geting all the facts pre-emtively is most likely a total canard in novice forms. As so well stated by the inventor of the incandescent light bulb, Thomas Edison, long ago: "not one person in this world knows even on millionth of 1% about anything" and so from that point of view we each are begining to tryi to fill our intellectual shopping carts with "news"; while the truth awaits to demonstate itself through the wings of time. Time will tell. Some are now bullish on Gold and others are bears & both have their place in the eventual demonstration of truth regarding the Gold & Silver markets. Some see demand vs. supply dynamics they observe to be deflationary today that should drive the price of Gold & Silver down but we have not yet seen any actual monetary deflation yet or a massive. factual numerical currency destruction. Hellicopter Ben is still creating monetization of US debts/bubbles. Unemployment is exploding anyway. Canards will be resolved soon!! . .less by Russ Smith on September 20 2009, 00:11 Find this comment inappropriate? Report it

Chinese rinimbi to devalue? Well Plato maybe the chinese are expecting their currency to devalue, hence the push for their citizens into precious metals. How would you retain an export market with an appreciating currency? by Joe on September 20 2009, 12:30 Find this comment inappropriate? Report it

Gold vs Dollar? Which come first,gold or dollar American today are printed money 24/7 without knowing when to stop Commonsense will dictate us that unless new frontier of knowledge to propel the economy otherwise gold being the traditional measurement of . .more currency will always comes first . .less by ThomasEng on September 22 2009, 01:41 Find this comment inappropriate? Report it

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