05 September 2010

China desperate for gold & The Mind Conspirators

1) Reported by imarketnews.com:

Sales by overseas central banks could see a sharp fall in gold prices, the Financial News reported Wednesday, citing Zou Pingzuo, a central bank researcher.

"Investors should be careful about investing in gold. Gold prices could fall sharply because of intensive gold sales by the U.S. and other overseas central banks," Zou said.

To me this a sign of desperation by the Chinese. There has been no indication by the US to sell and all recent talk is about central banks buying. They are trying the old scare tactic of central bank selling to try and push the gold price down. They want to buy as much gold as they can but don’t like the current high price.

I think they are hoping this "bubble" will deflate and they can continue with their sneaky "get out of dollars and buy gold". What happens when the Chinese realise the price isn't going to drop? Will they be forced to go all out and start buying whatever physical they can?

2) Worthwhile read for libertarians - The Mind Conspirators by Nelson Hultberg. A quote:

Philosophical fallacies and socialist falsifications of economics and history have gained sway in the school system to poison our citizens' minds against the American concept of freedom. Such fallacies have created a grossly distorted image for the man in the street about the way the world works. Freedom is now seen as inimical to human dignity. Creative entrepreneurship is portrayed as exploitation of the poor instead of their only hope. Gold is termed a "barbarous relic" instead of history's proven store of value. ...

We are being conditioned to accept sloth as normalcy, servility as dignity, weakness of will as compassion, and government conveyed privilege as justice. The world of sanity and rationality gives way to regimental nightmares of Orwellian "newspeak" and "political correctness" in order for legions of middle-class sluggards to feel good about themselves while they live out their spiritually squalid lives queuing up to the entitlement troughs of the mega-state.

My response to the article agrees very much with the comments of MetaCynic:

Accepting Hultberg's argument that ideas are the engine of not only entire civilizations but of every individual, begs the question why do some ideas gain traction and not others. Why did the ultimately unworkable collectivist ideologies of the big picture intellectuals, Rousseau, Hegel, Comte and Marx, find acceptance in the midst of the wondrous prosperity produced by the Enlightenment's Industrial Revolution? Why does the siren call of unaccountable collectivism to this day continue to outsell individual liberty with all its attendant responsibilities?

Despite its clashes with reality, do collectivist intellectuals really have to work very hard to find widespread acceptance for their ideas? Maybe there has always been a ready market for their disabling poison. In politicians and bureaucrats they have, of course, an enthusiastic audience eager to legitimize their own drive for wealth and power. In the envious masses they have deluded voters proudly participating in the process to redistribute the wealth of others into their own pockets. And in the captains of industry they have "capitalists" in need of protected markets and guaranteed profits. The great majority of humans are conformists and clock watchers interested only in comfort and entertainment.


  1. "The great majority of humans are conformists and clock watchers interested only in comfort and entertainment" and if either the comfort or entertainment is disturbed they will ask for a strong leader with simple solutions to bring them back to lala-land.

  2. Bron, I saw this last week as well, and this guy thinks he's George Soros and can influence a dip to buy more himself or he could be working under instructions; that's my opinion anyway. The reality is that the US/UK/EU debt is the real issue to be dealt with, and they have no tools left other than to prolong the correction. I don't know when or what it will look like, but the global economy will see it, and it will happen in a heart beat most likely. The US for one is going to see a fall in living standards, and if rates go up so will Australia when the housing bubble bursts. With all the doom I think there will be lots of once in a life time opportunities to benefit.

  3. Off topic:
    Interesting interview of Ian Smith, CEO of Newcrest, talking to Alan Kohler. Smith lays out the fundamental supply/demand scenario.
    Kohler wanted to talk "bubble".
    Kohler continues the "hate". I guess it keeps spoiling his recovery narrative.

    Interview starts about 9:29. There's a bit of an intro before that.

  4. Bron,

    I would like to see an explanation of China's strategy. If they were so desperate to add to their state gold reserves why did they decide to allow their own citizen's to compete with them by legalising AND promoting gold ownership?

    The only logical answer I can come up with is that they had already secured all the gold reserves they wanted (in-ground or above-ground).

  5. @costata - I'd suggest that in this case it is not a case of state vs citizenry, but state vs state. Getting the people involved:
    - significantly increases the buying power
    - makes it less obvious what is happening
    - still achieves higher gold levels within country if/when the accepted value of gold changes.

  6. intuitivereason,

    I agree with your analysis of the benefits to China. Gold "in country" are gold reserves regardless of whose hands they are in. Likewise gold in the ground (provided it can be extracted).

    However this strategy is very unusual for China and your perspective ignores the heirarchy that is evident in China's approach to wealth accumulation ie. Ruling families 1, State 2 and Citizens 3.

    FOFOA provides a plausible scenario showing how step 1 was executed in the 1990s. The ramp up of China's gold prospecting and mining expertise since 1984 goes a long way to showing how step 2 could have resulted in higher than stated (in-ground) reserves. (What cut-off grades are they using?)

    The initial relaxation of gold ownership in China stipulated minimum purchases that were far too high to allow the ordinary citizens to participate. Only the wealthiest of the middle class could participate initially.

    Then China makes gold and silver accessible for most of their middle class by improving distribution and providing product in small weights. Then they begin promoting gold ownership on State television.

    This gradual, incremental approach is very Chinese.

    Jim Rickards claims that China is aiming for 4,000 m/t of State gold reserves. How do you move from 1,054 m/t in "stealth" to 4,000 m/t? If this is your goal, do you create 200 million NEW competitors for the available gold?

    Sorry, I don't buy it.

  7. Isn't it the case that in China everything is pretty much owned by the state, regardless of who nominally owns it?

    3000 tons -> 3,000,000kg -> 3g per person in China.

    Sounds a lot until you put it in perspective.