Gold: If China Bought, Who was Selling and Why?
Russia, and it is still very bullish
Housekeeping: HAPPY THANKSGIVING!
Contents:
1- SUMMARY
3- WHY DID CHINA BUY?
4- SO WHO SOLD?
5- RUSSIA MAKES, CHINA TAKES
6- IS THIS BULLISH?
7- CENTRAL BANKS ARE STRONG HANDS UNTIL THEY ARE NOT
8- BOTTOM LINE
BACKGROUND
Last week the WGC disclosed that approximately 399 tons of Gold were purchased by central banks in Q3. Bloomberg, Zerohedge1, Jim Grant and others had noted this along with us. Most took care to point out a large percent of the Bank buyers still remained anonymous. In fact the anonymous portion was overwhelming at around 300 of the 399 tons. In a post put out yesterday, Nikkei Asia2 believes they know who the buyer was.
That post rehosted for GoldFix Readers can be read here
SUMMARY
Yesterday Nikkei Asia posted a story about who they thought the mysterious buyer was of all that Gold in the WGC report. They conclude it is China doing the buying. They cite analysts who infer China must be in a rush to reduce USD dependence in light of the Russian sanctions. That is likely true.
Before we get to the China part let’s get the buyers we know out of the way. Turkey, Uzbekistan, and India reported purchases of 31.2 tonnes, 26.1 tonnes and 17.5 tonnes, respectively. This 90 ton total is far short of the total 399.3 as unidentified purchases— like 300 tons short. Is that normal? No.
Some unidentified purchases are to be expected, but an unspecified slice of "this magnitude is unheard of," said Koichiro Kamei, a financial and precious-metals analyst. So who was buying? They think China was.
Several analysts based out of the Far East are now speculating it is China on the buy side. Why would China and the others buy so much?
While we cannot certify that is entirely true, here is their quoted reason for China buying:
"Seeing how Russia's overseas assets were frozen after its invasion of Ukraine, anti-Western countries are eager to accumulate gold holdings on hand," said Emin Yurumazu, a Japan-based economist from Turkey.
That economist is not wrong. But if China were acting eagerly, the price would have finished higher last month, not lower. There is more to this. But first let’s see why China et al would want to buy, other than the obvious.
Related posts:
WHY DID CHINA BUY?
Given how the US and G7 not only froze Russia’s assets but actually confiscated some of them, you can understand how any other country would also feel anxiety their own assets can be confiscated. More-so if you are friendly with Russia as Turkey, Uzbekistan, India, and China are. So it would behoove them all to offload dollars prudently. Buying Gold is one good way to do this.
Russian Selling Was China and Company’s Buying Opportunity…
Zerohedge quantifies the idea:
China has stood out by unloading substantial amounts of US bonds. It sold $121 billion in US debt , the equivalent of roughly 2,200 tonnes of gold, between the end of February -- immediately after Russia's first attack on Ukraine -- and the end of September, according to the latest TIC data.- Source
We know why the buyers bought. But something is wrong. If that much Gold was bought, then why did the price close significantly lower during that time period?
Gold Dropped for the three months China was buying Russia’s offload….
Here’s why. While the buyers ( China and company) may be in a rush of sorts to lower USD exposure, the seller was in a bigger rush to raise cash.
To be a little more specific: It’s not just who was buying that matters. It is also who was selling that matters. And that seller was another country’s Central Bank. The buyer was a country (China) that stood to benefit from a seller’s need to raise USD. Which country, because of sanctions, has had to sell its resources (Oil, Nat Gas, and now Gold) at a discount to a smaller cadre of buyers? Russia.