China’s Global Gold Strategy
Willem Middelkoop was a journalist until 2008, but he always had a good feel for financial markets.
Back in the 1990s for example, he bought as many as eight properties in Amsterdam with no money down, capitalizing on falling interest rates as well as a booming expat rental market.
Later he became interested in gold and the monetary system, correctly predicting the financial crisis of 2008 in many of his more than 5,000 appearances on Dutch television.
In the same year, he founded the Commodity Discovery Fund for high net worth clients. The fund specializes in gold and silver mining companies.
A Chinese language version was published and he launched the book at the Chinese International Monetary Institute, a leading monetary think tank.
The Epoch Times spoke to Middelkoop about China’s plan to accumulate gold and store it with the people, as well as their end-game for the reform of the financial system.
Epoch Times: How does China view gold?
Willem Middelkoop: The most important thing to understand about China’s gold strategy is that they see gold as a hedge against the financial system and the reserve holdings they have right now.
They still have $3.2 trillion in reserves and they understand the current dollar system is in its endgame. And they have been very vocal in their wish to hedge their dollar positions with gold.
Most of these statements never made it into the Western Hemisphere, but if you look at all the articles in China, they say they want to achieve “the highest gold reserve in the shortest possible time.”
They had quite a bit of gold in the 1920s and 1930s but most was taken away by the Japanese, after the invasion a few years before World War II.
After the war, the Kuomintang fled to Taiwan with the rest and China’s vaults were empty until the 1990s. They have a very strong wish to grow their gold reserves now.
Epoch Times: How much do you think they have now?
Mr. Middelkoop: If you want to know how much gold the Chinese have accumulated over the last 15 years, it’s not enough to look at the official gold holdings.
The central banks gold holdings are low compared to total Chinese holdings. The official reserves are shy of 1,800 tons, that’s less than 2 percent of all foreign exchange reserves.
It’s their wish to grow it to 10 percent of financial reserves, or $320 billion. Russia has over 10 percent, Europe and the United States have a much larger share. In the West, they generally have 50 percent of all reserves in gold.
There is an official Chinese program called “storing gold with the people.” It was mentioned in an article published on the People’s Bank of China’s (PBoC) website in June last year, after they updated their official reserves.
If you look at the total gold holdings in China, the physical gold holdings are well over 10,000 tons. These reserves are stored with commercial banks, with companies, and ordinary Chinese.
At least half of it is owned by Chinese citizens. The Chinese leadership has studied financial history quite well. They know that in crisis situations, the central government can confiscate gold and hand out paper money in return. Especially in a centrally controlled country like China.
The Koreans did the same during the Asian crisis, the United States did the same in 1933 when President Roosevelt forced all Americans to hand over their gold holdings. Americans citizens weren’t allowed to buy or hold gold between 1933 and 1974.
It will be possible for the Chinese to confiscate gold when they need it, for example if they lose too much of their financial reserves defending the currency. Then they could call in the gold holdings of ordinary Chinese, but this is like a medicine, which you can use when the situation has become quite desperate.
Epoch Times: How did they accumulate so much gold without sending the price to $5,000?
Mr. Middelkoop: They don’t want to push gold prices up too high too fast, they don’t want to say openly that they use gold as a hedge against the dollar system.
So they have to pose that gold is only a small part of their reserves. They are very clever the way they play it. If they want to send gold to $3,000 per ounce, they could do so any week by bringing out a release they will convert 25 percent of their financial reserves to gold.