Chinese Government Wants To Purchase Another $80 Billion Of Gold!

By Patrick A. Heller June 30, 2009

Nine weeks ago, the Chinese government admitted to the mainstream media that it had added 14.6 million ounces of gold reserves from 2003 through 2009. For years before that disclosure, several of us non-mainstream media members had reported this activity to smaller audiences.

It wasn’t until about June 9 that the mainstream media was told that the Chinese government was planning to purchase an additional huge quantity of gold. The information became public when U.S. Rep. Mark Kirk (R-Ill.) was interviewed on Fox News by Greta Van Susteren.

Kirk accompanied Treasury Secretary Timothy Geithner on his trip to China in May. While the Chinese were laughing at Geithner during his speech at Beijing University for claiming that the U.S. dollar was strong (By the way, laughing at a speaker is a major social no-no in China, a sign that Geithner’s comments were not respected at all!), Kirk was engaged in a private conversation with lesser Chinese officials. In this non-public discussion, Kirk was told that the Chinese were extremely concerned about the likely near term decline in the U.S. dollar because of the explosion of government debt. As part of the reaction to this concern, the Chinese government had established another reserve to stockpile petroleum and was planning to purchase another $80 billion of gold (about 85 million ounces at today’s price level).

Kirk’s revelation about the Chinese plan to purchase another $80 billion of gold was the very last comment in the interview. This extraordinary news received almost no coverage until last week when multiple hard-asset Web sites picked up the interview.

This information is not fresh news, even though the mainstream media did not report it until Kirk’s interview. For instance, I discussed the substance of it in the April 28 edition of this column. Let me repeat the relevant paragraph for you:

“By the way, the way the Chinese government operates is not open and direct. Changes in policy are signaled by speeches or papers by lesser officials. And [as] has been shown repeatedly, when the Chinese government issues a statement that it is considering something such as purchasing gold, they really mean that they have already been actively doing it. It is entirely possible that China’s central bank gold reserves are much higher than they now confirm.”

So, when the Chinese, by their indirect method, disclosed that they plan to purchase another $80 billion of gold, you can just about guarantee two facts. First, the Chinese are already buying this gold. Second, the amount of gold planned to be purchased is larger than they stated.

How much is 85 million ounces of gold in relation to anything? The potential International Monetary Fund (IMF) gold sale that has been bantered about since 2002 as a means to knock down the price of gold is less than 13 million ounces. Annual worldwide gold mine production is roughly 60 million ounces. The Central Bank Gold Agreement, covering governments, central banks, and official organizations such as the IMF that hold about 80 percent of the world’s official gold holdings, limits annual sales to 16.1 million ounces.

How can the Chinese accumulate this much more gold without the spot price rising significantly? The simple answer is that this is not possible. The price of gold is going to have to rise by a lot, much faster than mainstream financial experts want us to believe. The price will not rise in a straight line, but the longer you wait for any ‘pullback’ to offer a buying opportunity, the greater your risk that you might not be able to purchase anywhere close to current gold price levels.

This past weekend, I attended the International Paper Money Show in Memphis, Tenn. I was surprised how many dealers, whose livelihood does not involve trading gold at all, told me that they regularly read this column and have personally laid in a good stash of physical gold for their own protection.

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