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China Surreptitiously Acquiring Gold Via The Perth Mint?

IN THE NEWS

In a recent Financial Sense interview Jim Rickards said that on the dip in the gold price to $1,200 China bought 600 tonnes from The Perth Mint.

Unfortunately (in that The Perth Mint would have liked the profit on the sale) Jim’s sources for that statement are wrong. While China has increased as a destination for the Mint’s output over the past five years, as I discuss in this ABC Radio Australia interview, The Perth Mint only refines around 25 tonnes per month so to supply 600 tonnes in a few months would not be possible without accessing, and impacting on, the London market.

In respect of market impact, in this interview with Tekoa De Silva, Jim notes the acquisition of foreign gold mines by Chinese firms and surmises that the gold produced by them is being shipped “straight to Shanghai. They’re completely bypassing the London market where they minimize their market impact”.

I would note that very few gold miners get involved in the physical distribution of gold, given the complexity of getting the right product to the right buyer at the right time. Most usually receive an account credit and then sell it in the spot market, as this video by Endeavour Silver explains.

In any case, even if Chinese investors did acquire a large number of foreign gold mines in the future and started to ship it back to China, that would still have a “market impact”. The gold market is globally connected and the bullion banks and other major players would notice that refiners did not have much physical to supply to them. This reduction in supply would increase the price.

As I discuss in How Much Gold Does China Have?, China has been encouraging personal investment in gold on the basis that “private gold reserves are an effective complement to national reserves” and are “very important for the maintenance of the country's financial security”. Whether acquisition of foreign gold mines is a national strategy or just a shrewd investment by Chinese firms is debatable. What is not is the increasing importation of physical gold in China, as the chart below from sharelynx.com demonstrates.

 

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