China's Latest Buy

Yesterday, we reported, with a little unease, one of the biggest gold sales in history. The IMF is looking to get rid of an eighth of its reserves — over 400 metric tons, worth $13 billion. It’d been publicly mulling it for a long time, but still… can’t be a positive for gold prices.

Today, some better news and a sign of the times, wrapped into one: China is rumored to be a buyer of the IMF’s stash for sale — maybe the only buyer.

“China will consider buying if the price is right and the return is relatively high,” a mystery Chinese central banker told Reuters. No telling just how much they’d pick up, but given its $800 billion in U.S. Treasury reserves, we’re pretty sure China can afford as much as they want.

(For some perspective, go grab one of your 1-ounce gold coins. If you had 32,149 more, you’d own one metric ton. If China completes this purchase — all 403 tons — that’ll be enough gold to fill a 8’x10’ office to the ceiling.)

“China holds just over 1,000 tons of gold in its official state reserves,” notes Byron King, who always has a finger on the gold beat. “Probably more, if you consider ‘stealth’ holdings categorized as industrial stockpiles. If China buys up to 400 tonnes of gold from the IMF, it’ll increase China’s reserves by 40% in one fell swoop. (And stick the IMF with a bunch of depreciating dollar assets.)

“Will an IMF gold sale to China affect prices? If done correctly, no — or not much, in the short term. Because if done correctly, it’ll happen quietly… there won’t be any announcements beforehand, and we’ll only find out about it when the IMF and China next report their gold holdings. It’s not like any Chinese trucks will be showing up at the mines and refineries taking ‘current’ production. That’s exactly the way that the Chinese want this to happen.

“Still, it’ll dramatically increase China’s gold holdings, strengthening the country’s long-term monetary hand. China does NOT want to see the world go to a nondollar ‘gold-like’ standard… not yet.

“Because China does not have enough gold in its vaults… not yet!

China vs. Global Gold Reserves

“On that point, they’re working on it. It’ll take time. It’s a long-term play, a long-term strategy. That’s why investors have to keep an eye on the long term and buy gold and mining shares now… for the future of inflation, and as the wheel of history turns toward China.”