How Hong Kong can benefit from China's gold reserves

A century ago when China was on the silver standard China was in a complete mess, looted and humiliated repeatedly by Russia, Japan, the British, and the United States.

Today, it appears that China has chosen gold... and as a result, they are basically buying up the world's gold supply as we speak.

According to Wikileaks the US embassy in Beijing recently reported about China's National Foreign Exchanges Administration; the cable quoted the China Administration as follows:

"China's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the U.S. and European countries. The U.S. and Europe have always suppressed the rising price of gold.

"They [the U.S. and Europe] intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or Euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency.

"China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the RMB [China's currency]."

Forbes also quoted William Purpura, one of the world's leading authorities on the subject. Purpura is Chairman of the COMEX Governing Committee, and he said China makes it a practice to camouflage its gold purchases by not reporting them so as not to affect prices in the market.

Over the next few years, China's accumulation of gold is going to cause some assets to skyrocket, and others to plummet.

It will cause some types of gold to become worth many times the price they fetch today... while other types of gold could become nearly worthless. I am sure you can guess which is which.

China knows that in a time when nearly all governments around the globe are printing massive amounts of currency, backed by nothing but an empty promise, China can gain a huge advantage by backing their currency with the precious metal.

Today, China is the fastest growing country on Earth, with the largest cash reserves on the planet. And as befits a first-rate power, China's currency is on the path to being backed by gold.

Hong Kong is the largest repository for China's currency outside of the mainland, and the only place the Yuan is commonly used or traded which allows the Chinese officials to test how the Yuan can function in an international setting, helping them prepare for the day when China lifts its restrictions and the currency becomes widely convertible.

Already about 30% of China's global trade passes through Hong Kong, more settlement of trade in Yuan meant more Yuan flowing into the Hong Kong bank accounts of businesses exporting raw materials, machinery and other goods to China.

However, there is a cap on Yuan trading put in place by the Hong Kong Monetary Authority; hence, the authority, Hong Kong's central bank, limited each bank's forward contracts in Yuan to 10% of its assets or liabilities denominated in the currency.

Norman Chan, chief executive of the HK monetary authority, observes that pegging HKD to the Yuan now would be a radical move and makes little sense until the Yuan is fully convertible and has earned a track record as a global currency… really? Looks like the Hong Kong Monetary Authority must follow the Federal Reserve’s guidelines.

Keep in mind that Beijing has set for turning Shanghai into an international financial center within the next 7 years or so, which by then China opens up its capital account, allowing money to flow into and out of the country freely.

Is there a possibility that this scenario will close Hong Kong’s "window of development” to solidify its offshore Yuan position? It is definitely something to consider.

If you’re confused by gold’s price drop recently note this: like William Purpura quoted that China makes it a practice to camouflage its gold purchases by not reporting them because it might push gold prices higher. By the way it is not legally required by anyone to report how much gold China, Russia or India are buying.

Do you folks understand what the “Renminbi Kilobar Gold” means?

In so many words it means a step closer toward making the Yuan a global reserve currency!

You ask why the dollar is losing ground, well for the past 50 years the U.S. dollar has been the world's "reserve currency," they haven't had to produce or export anything to get all the dollars they needed to buy all the oil (and other goods) they need. All they had to do was borrow and print more money and boy did they…

See Figure 1.

Get the picture? Also do keep a close eye on US’s desperate fight to save their petro-dollar.

Gold and silver that does not exist, except as paper contracts for future delivery, are being sold into the market in a precise pattern that repeats every Monday morning. This is a concerted effort by banks to artificially depress prices.

So while China, Russia, India and the long line of central banks are rushing to buy up all the gold on the planet earth you still have questions on gold’s true value??? Remember, charts are made while you’re asleep.

So build your core position in physical bullion. If you invest in "paper" gold, do it with money you can afford to lose… and don’t worry Hong Kong, 阿公 has your back; nevertheless, I would keep HKD instead of the greenback though.

Just in:
And now Germany's central bank, the Bundesbank, announced that it will transfer 300 tons of its gold from the New York Federal Reserve, which currently houses 3,400 tons of Germany's total holdings. [The rest is scheduled for delivery over the next seven years.

Why not take it all within a few months? Because the Fed does not have it and its banker friends in Germany are willing to help cover the fraud as long as possible. The fraternity looks out for its own.]