China’s London-Zurich-Hong Kong gold conduit — a major financial coup d’etat

China’s London-Zurich-Hong Kong gold conduit — a major financial coup d’etat

The United Kingdom’s gold exports to Switzerland jumped from 85 tonnes to 1,016 tonnes in the first eight months of 2013 — a twelve times increase. Some bullion market watchers attribute the huge increase to withdrawals or sales from ETFs — an explanation that covers only half the story…….if that.

Switzerland, according to the Koos Jansen website, has exported nearly 500 tonnes of gold to Hong Kong through July, 2013. Hong Kong, in turn, has exported over 1200 tonnes of gold to the Chinese mainland over the same period. Now, with this report of ramped-up exports from the United Kingdom, another piece of the puzzle falls into place and we begin to get a fairly clear picture what these gold mobilizations entail. Switzerland and Hong Kong are acting as a conduit of western gold on its way to China — and probably Chinese central bank reserves.

 

To what extent this gold mobilization is the result of some yet-to-be-identified external pressure on London’s bullion banks, or simply business as usual, remains to be determined, but gold movements of this size usually do not occur in a vacuum. Hedge funds have been in the gold ETF liquidation mode since April, at the behest, it seems, of certain bullion banks that have issued generalized ETF sell recommendations to their clientele (which includes the funds). The ETF selling has been blamed repeatedly for the rapid drop in the price. If all of this has been a ploy to drive down the price on paper and channel substantial amounts of physical gold to China, who is the winner in this game and who is the loser? And why is it being done?

The gold market is incurably opaque (no matter how diligent or persistent the arguments to the contrary that it isn’t or that it should not be), and that is probably why so many are intrigued by it. Yet, at the same time, those who innocently own gold for asset preservation purposes can rest assured that they will never become collateral damage in these affairs as long as they do not allow themselves to lose patience or forget the reasons why they purchased gold in the first place.

Gold is never sought by those who think all is well with the world. It is sought by those who believe that things could go wrong, or indeed, that things have already gone very badly. That true believer might be someone of incredible private wealth, as was the case with Bernard Baruch in the 1930s, or it might be a great nation-state like Germany or China today. When the sitting Secretary of the Treasury asked Bernard Baruch why he was buying so much gold, the reply came quickly that he “was commencing to have doubts about the currency.” China and Germany, no doubt, are acting on doubts of their own. Up until today, we were unaware of the degree to which those doubts had manifested themselves in the hidden corridors of the world gold market.... Now we know. In the first eight months of 2013 China produced 270 tonnes of gold from its mines, and theoretically almost four times that amount through its London — Zurich — Hong Kong gold conduit. In future years, this will likely be considered a major financial coup d’etat.

*** Michael