This is an old interview done nine years ago by Koos Jansen, someone I observe who is familiar when it comes to the gold market in China. The resource person is Alex Stanczyk, Chief Market Strategist for the Anglo Far-East Group of Companies.
The topic under discussion is the gold market in general and the China gold market in particular. Even after almost a decade, I still find the letter from the Federal Reserve the most interesting part of this interview.
Koos Jansen raised several questions. Among them, I like inquiries related to China's gold market, the gold trade cycle, and gold manipulation.
China’s Gold Market
In responding to Jansen’s question about the status of China’s gold market at that time, I find Alex’s response enlightening in three areas:
Reasons for the Aggressive Gold Accumulation Campaign
For Alex, the Chinese government has been aggressive in its gold accumulation campaign encouraging even citizens to buy gold due to three reasons:
One reason is that the Communist Party of China intended to switch capital from real estate and equities to gold.
Still another reason is to avert civil unrest in case inflation endangers the economy for the yellow metal has the capability to provide the necessary stability.
And the final reason is that the campaign is part of a national plan in case of economic crisis. In such a situation, the people will be in need of cash. The government then would gladly buy the citizens’ gold to increase its gold reserve. This is consistent with China’s national gold strategy.
Weiqi
The second area where we can identify the current status of the gold market in China is somehow related to a fascinating game called Weiqi. Alex made an intriguing interpretation of China’s seemingly “illogical” behavior based on this game. He said that the Chinese love to play this game and supposed that it gives the outside world a hint about how the Chinese think. Here’s how Alex describes the correlation:
In Weiqi you have to surround your enemy slowly and lay a trap, and then close the trap all at once. That’s the way the Chinese think, they don’t really disclose what their plan is, they just move tiny pieces around the board in a seemingly incoherent way, but when all the pieces are lined up that’s when the trap is sprung. All of the government party leaders play this game, and the CEOs and chairmen of China’s largest businesses are all part of the party.
If this interpretation is accurate, it now makes sense why the actions of the Chinese government seem disconnected. Reading popular articles written by western economic and financial commentators, it appears that the gold market is going in the direction according to China's "incoherent" plan.
Gold as Priority Investment
As already mentioned, one of the reasons why the government motivates gold ownership among its citizens is the diversion of capital from real estate and equities into gold. This tells us that for the CCP gold is a priority investment. With this observation, Alex made a curious conclusion. For him, this is the reason why during that time there was abundant bad news concerning the sad state of China's real estate industry and the stock market, and yet at the same time when it comes to the gold market, China is still keeping the western world in the dark.
Trading Cycle
Imagine this topic about the gold trading cycle was very hot at that time. Nine years after, it’s getting renewed attention again in 2022. That’s the benefit of taking into consideration what happened in the past as you analyze this sector. It seems that there is nothing really new under the sun. It just moves in a cycle. At that time, Alex thought that “the bottom is already done and that the fundamentals remain intact,” which implies the resumption of the bullish trend.
This time, we have cryptocurrency as a new player that competes with gold for market attention. The dominant sentiment I observe is that the majority is bearish about cryptocurrency in general and bullish about gold.
Gold Manipulation
And now turning to the last question about gold manipulation, I have a reservation about the current narrative concerning the end of crypto and the return of the buyers in the gold market. I arrive at this conclusion not only because I am no longer familiar with the current status of the gold market, but it is also because based on my trading experience since 2015 that when extreme negativity is happening in a specific market sector, what follows next is usually contrary to the expectation of many.
The response to the last question proved the fact that manipulation in the gold market really exists. If it really happened in 2013, what would prevent the manipulators to do the same this time? If this is the case, as I wrote in my previous article, the direction of the price of gold does not serve as a reliable indicator of anything such as growing inflation or distrust in the current system. For the price of gold to provide us with a credible signal, one necessary requirement is freedom from heavy intrusion.
One piece of evidence that Alex showed Koos to prove the existence of gold manipulation was an old letter from the Federal Reserve. In that letter, you will see that in the eyes of the Fed, managing the price of gold is a must "to maintain control of the global currency system".
It was Arthur F. Burns, Chairman of the Federal Reserve who wrote the letter on 03 June 1975. In that letter, we see that the primary concern is about placing a "ceiling on the gold holdings of an individual government," a position that the Federal Reserve favors.
Reading this letter, I came to realize four things:
The Fed does not like gold to be part of the monetary system. It also does not like gold to have a market price.
The Fed's position is different from the US Treasury as to the gold ceiling.
The Fed is a socialist institution, and that
The Fed wants a monopoly on inflation.
I just updated an old article. It is up to you to decide whether there is truth in this interview conducted in the past.
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