Aw hell, it's still early...
China and Dollars.
I'm sure all the 'bugs know well...the mantra -
"Too big to fail."
re: The fall of LTCM, JPM's derivative crisis et al.
Well, there's a similar concept out there vis a vis
the US Dollar.
It's called:
"Too many and too late -- to dump."
And that's China's predicament.
If they dump dollars, or even stop buying U.S. Treasuries,
then they don't just shoot themselves in the foot, they
shoot themselves in the head -- because of their massive
Dollar/Treasury position.
In plain, simple, english:
It's too late to dump.
They've taken in too many dollars to dump, or to diversify.
And Paulson & Co have them right where they want them.
It's a grand symphony being played out.
And the Chinese already know how this game ends.
John Nadler of Kitco talks about it in this
interview from Resource Investor:
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resourceinvestor.com
Here's a snippet vis a vis diversifying into gold:
RESOURCE INVESTOR: China has been hinting at diversifying the country’s $1 trillion in foreign exchange reserves by increasing their gold reserves which now only stand at 600 tonnes. Any thoughts on what this will mean for the gold market should China decide to seek an increase in gold reserves?
JON NADLER: Actually, Chinese officials have been actively talking down the idea of buying gold to add to reserves. For one thing, the simple act of buying a sufficient supply of gold for such a strategy could drive up the price substantially, so that is a potential negative for the central bank. Even the gold tonnage could be secured without disrupting the gold price, the Chinese would place themselves into a situation that is largely the same as that which they are in now, in with regard to their U.S. Dollar reserves. They would become unable to sell any significant amounts of their pile of gold without setting off a major plunge in gold prices, thus turning the whole exercise of adding gold to reserves into a potentially disastrous venture.
What if, (just for instance) by the time the Chinese had finished accumulating another 2 or 3 thousand tonnes of gold, the bull market for the gold might just be over? In reality, the Chinese central bank, which has to plan for the really long term, would be really be ill advised to shift its reserves out of dollars and into gold in any significant way. We spoke to a couple of central bankers face to face at the beginning of this month and (unless they were playing Chinese poker) they asserted to us that they were not contemplating adding a large sum of gold to reserves, and that if they were going to add any at all, they would do so in a manner not readily noticeable in the marketplace.
There is still good news for gold investors in all of this, as any diversification by them into other currencies, (the euro for instance), would further undermine the value of the dollar and that, more than anything else, would have positive implications for the gold price. Also, if the Chinese central bank just stays put and remains at the currently low allocation level for gold, it is pretty clear that such a strategy would still imply having to buy more gold over the next three to five years, as everyone expects that despite their imminent diversification moves their U.S. dollar reserves are still bound to increase one way or another. Thus, here is a case where the status quo is still good news. But we are not... banking on gold’s salvation to be coming from illusory purchases by Asian central banks (just as we were not too concerned with the weak Western banks letting go of gold over the past years).
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Nadler makes some very honest and rational points...
quite rare for a 'bug (vbg).
But!... he's left out the single most important part of the
equation -- as far as gold bugs are concerned.
Would anyone venture to take a stab at what that is?
Here's a clue:
It's what caused the violent collapse of Gold back in May.
Violent being the key word there...
SOTB |
