China Playing Catch-up with World Central Banks on Gold Hoarding

Over the past three years, the central bank of India has significantly increased its gold bullion holdings. India became one of the most aggressive buyers of gold bullion in the world in 2009 when it bought 200 tons of gold bullion from the International Monetary Fund (IMF). India’s central bank is expected to continue buying gold bullion into 2013, as only 10% of its reserves are in gold bullion. (Source: Market Watch, The Wall Street Journal, last accessed October 20, 2012.)

Similarly, China’s central bank is trying to quickly and quietly accumulate gold bullion. Sales of gold bullion from Australia to China increased 900% in the first eight months of this year. (Source: Bullion Street, October 18, 2012.)

China only holds 1.7% of its reserves in gold bullion. With the U.S. dollar falling in value against other world currencies and with other central banks around the world working on devaluing their currencies, gold bullion seems to be a viable option for the Chinese central bank to resort to.

China’s holdings of its reserves in gold bullion lag those of the remainder of the world’s leading economies; hence the country needs to play catch-up. While China holds only 1.7% of its reserves in gold bullion, the U.S. holds 75.0% of its reserves in gold bullion, Germany holds 72.0%, and France holds 71.0%.

Just a doubling of China’s percentage of reserves in gold bullion, from 1.7% to 3.4%, would result in the price of gold skyrocketing, as there simply isn’t enough gold bullion to satisfy that demand.

The 17 eurozone nations in total have more than 10,000 metric tons of gold bullion and are just sitting on it. (Source: “How Gold Can Solve Europe’s Debt Crisis,” The Wall Street Journal, October 18, 2012). It won’t be surprising that the central banks in Europe did not sell any gold this year.

I’m just trying to share this specific message with you today: gold bullion is getting a lot of attention from world central banks as the same institutions race to devalue their respective currencies. Demand for gold bullion is real. The fundamentals behind the price increase in gold bullion are real.

My personal plan, the same plan I have been following for years, is to continue accumulating gold investments as gold bullion prices weaken.

Where the Market Stands; Where It’s Headed:

Is it just me, or are people starting to catch on to the fact that there has been no structural improvement in the economy since 2009, only rising government debt and money printing? The stock market sure looks like it has caught on.

Just look at these financial headlines: “Google Reports Profit, Sales That Miss Analysts’ Estimates;” “McDonald’s Profit Falls 3.5% as U.S. Growth Slows;” “GE Revenue Trails Estimates as Health Unit Sales Weaken;” and “U.S. Posts Fourth-Largest Budget Deficit Since WWII.” I’ve been warning my readers about these kinds of headlines weeks before they happened.

Only a couple of times a year do I dare bask in the glory…and I can’t resist today:

On August 11, 2012, August 14, 2012, August 16, 2012, August 18, 2012, and August 30, 2012, I warned my readers that the stock market would start to come down specifically on September 30, 2012—I was right on the money!

What He Said:

The year “2000 was a turning point of consumer confidence in high tech stocks. 2006 will be remembered as the turning point of consumer confidence in the housing market. That means more for-sale signs going up, longer time periods to sell homes, bloated for-sale inventory, and eventually lower prices for homes. But this time, the turnaround in consumer confidence will have a bigger impact on the economy. Hold onto your seats, this is going to be a nail biter.” Michael Lombardi in Profit Confidential, August 24, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.