China Accumulating Gold
Richard Russell
Dow Theory Letters
April 3, 2003
Gold -- In the background, gold dropped sharply as the dollar surged. It seems obvious that gold's "time" has not yet arrived. The world's central banks and particularly the US Fed have done a good job of convincing the world that black is white and that paper (fiat) currencies are "good" and that gold is "bad."
This has been the result of decades of propaganda, and that propaganda will not be erased in the space of a year or two. The gold bull market is still in its infancy, or in what I call its first phase. Gold is quietly under accumulation, but what I believe is so interesting is that gold is under a sort of "official" accumulation by China and its citizens. Note the item below. To me it's obvious that China has embarked on a national policy of accumulating gold both for both the government and for its citizens. And the lower the price of gold, the better China likes it.
The men who are running China's economy are not stupid, and China knows well the power of gold. I've said this before, and I'll repeat it -- it would not surprise me to read some day that China has decided to back its currency, the renminbi, with gold. I believe that China, quietly, has adopted a long-term policy of competing with the US for super-power status, if not in the world, at the very least in Asia. It's also clear that the battle, as China sees it and wants it, will be in terms of economic, not expensive military power.
The US depends heavily on the reserve status of the dollar. How best to compete with the US? My answer -- compete on the basis of having the stronger currency. Right now the Chinese have pegged the renminbi to the dollar. They'll keep it that way until they are ready to float the renminbi against all the world's currencies. The float will come at a time of China's choosing, despite the pressure from the rest of the world to float the renminbi now (since it's conceded by everyone that the renminbi is now drastically undervalued).
China opens gold market further, drops license requirement
Wednesday April 2, 2:44 am ET
HONG KONG, April 2 (Reuters) - China, in another major liberalization step, announced that gold jewelry manufacturers, wholesalers and retailers would no longer need to obtain a special license from the central bank.
The move opens the way for overseas bullion dealers and jewelry manufacturers to open or expand their businesses in China.
The People's Bank of China (PBOC), which previously regulated all aspects of the gold industry in China, said companies interested in purchasing, processing, wholesaling and retailing gold would no longer need approval from the official body.
News of the change was reported in the official China Daily newspaper on Wednesday. People's Bank of China officials were not immediately available to comment.
It is the most significant step the government has taken to liberalize the gold industry since the opening of the Shanghai Gold Exchange in October last year.
With the launch of the exchange, the People's Bank, China's central bank, also relinquished its role and the sole buyer of gold producers' output and the sole supplier of gold to industry.
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