You have more in common with the Chinese government than you might realize…
If you’re like me, you probably started buying gold years ago after coming to the obvious conclusion that the dollar was not just going to be devalued, but that it was an overt policy choice.
Gold is priced in dollars. The choice between holding no or low yielding USDs/US Treasury securities and gold – a form of money that has thousands of years of track record as a store of value and unit of exchange – was a no brainer.
In fact, you probably tried to tell everyone you know about this obvious trend. As you’re aware, people don’t want to hear the “money” they grew up with and they think they understand, is not what it seems.
People like certainty. They like to assume that things will probably continue as they have, that the US government’s monetary stewardship is more or less “good” on balance, and that a dollar is a dollar.
Eventually, people will be forced to understand the foolishness of this viewpoint.
But so far, most people haven’t. Over the past few years of the bull trend in gold, retail buying of gold has not taken off. It’s up slightly over previous years, but most people still do not own gold, let alone the 5-15% allocation that professional asset managers recommend.
On the other hand, central banks around the world have seen the light. Maybe they’ve been reading my work, or maybe they saw the wisdom in a tweet you wrote, or a comment you left on a YouTube video.
Almost all of the gold buying over the past 5 years has come from central banks (and recently: Tether, which buys 2 tonnes a week.)
China too, likes certainty. For decades, China assumed a dollar is a dollar. They assumed US monetary stewardship was on balance, good. They took excess dollar reserves from commerce with America and bought US Treasuries.
Until they didn’t.
China came to the same conclusion about the US dollar that you and I did, sometime around 2014. They’ve been winding down their US Treasury position since then. They’re buying more gold.
And more than that: China has been rapidly building the plumbing for a whole new international gold market, set up in Hong Kong. They are extremely interested in becoming the world’s global choice for gold trading, vaulting, price discovery and they are also centering the Chinese Yuan as the currency behind this whole enterprise.
Again: as a gold buyer, you’ve probably been down the rabbit hole on theories about price fixing in the precious metals markets. You might remember that JP Morgan even paid a fine back in 2020 for this very crime.
Apparently, China also reads obscure monetary blogs talking through these theories, and is now dead set on having a real, transparent gold market for genuine price discovery outside of the influence of London and New York banks…
If we assume that China is simply following the logical footsteps of gold buyers like us, we know what might come next:
China will start to want to own high quality gold stocks…
We know little about China’s sovereign wealth fund – which does not have to follow SEC reporting guidelines. From what I can tell, China does not yet own western gold miners of the kind that we cover in my services.
They almost certainly own large stakes in domestic Chinese gold mining businesses, though. If they want more exposure outside of China, we know where they’ll look…
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio
