Most of you know I don’t buy in to conspiracy theories, most of which end up being dead wrong, though that never seems to dissuade the people fronting what turn out to be outlandish claims. Given that conspiracy theories abound, it does happen now and again that the facts to come together to suggest something so outlandish – it sounds like the plot for a Tom Clancy technothriller.
One of those facts that carries disturbing potential is that China is almost certainly stockpiling large quantities of gold. That claim is difficult to confirm because China isn’t saying how much gold they have and you can’t trust public announcements from them anyway. The lack of trust that’s inherent in any story dealing with the Chinese necessarily adds an asterisk to the end of any definitive conclusions. That said, if the Chinese really are stockpiling gold the next question would be why? I can think of a lot of reasons a country would increase their supply of gold, none of them particularly good and definitely not any that align with our interests.
ZeroHedge.com does a pretty good job of outlining China’s accumulation of gold and you’ll find similar analysis at FastMarkets.com, SeekingAlpha (registration required) and Bloomberg.
Part of the influx of gold is doubtlessly to provide liquidity for the new gold exchange in the Shanghai Free Trade Zone but the amount of gold China has been stockpiling far exceeds the needs of the exchange. The exchange does provide China a convenient mechanism to monetize their gold holdings, should they decide to do so.
What makes the Chinese affection for gold so suspicious and potentially ominous is the amount of U.S. debt they carry, estimated to be in the range of $3 trillion dollars. One of the reasons the Chinese might hoard gold is if they worried that the value of those dollars was going to decline. Or, if you’re conspiracy minded, you might be tempted to think they know the dollar was going to decline because they have some limited power to make that happen.
Another possibility is China making a play to become the world’s reserve currency. I tend to discount that possibility because the Chinese are the biggest currency cheaters on the planet, a practice that’s incompatible with being the world’s reserve currency. Would any sane country really want to accept an exchange rate set by the Chinese government? I find that highly unlikely.
All the same China could opt for a compromise position, something like Chinese Bitcoin; a digital exchange currency backed by gold. I’m actually surprised someone hasn’t done this already and China would definitely have the resources to make that happen.
For now the vision may be grander than the reality. If China planned on pursuing this goal with Russia and Venezuela as partners, they didn’t exactly pick the most reliable posse. The Russians blundered on the world stage with the situation in Ukraine, which just blossomed into a public relations nightmare when their lackey separatist rebels shot down a Malaysian airliner. Venezuela has flirted off and on with bankruptcy since 2001; so much for their team-building skills.
Even China isn’t big enough to take on the U.S. economically by themselves, but I’m sure they’ll stay busy inking oil deals denominated in currencies other than the dollar. One thing is for certain; the Chinese are not our friends and hindsight would suggest that allowing our manufacturing capacity to leave America for Asia is looking like a really bad move right now. All that has accomplished is enriching a country that may be planning to launch a preemptive strike on our currency.