Sinomania!

According to Reuters, the World Gold Council says China's central bank announced rules in August that will allow Chinese more banks to import and export directly on the global market. As China is slowly building its central bank holding of gold this means that China may soon play an important role in the global trade for bullion....

It is an interesting irony that the same mainstream media that criticizes Chinese government data as untrustworthy claims that same data is capable of moving commodities, currency, and stock prices the world over. Consider today's headlines. Chinese numbers on exports and inflation are responsible we read for stock markets going up in the USA, Canada, and Brazil; affected the Mexican Peso, the (US) Dollar, and the Yen; and impacted gold and oil markets!....

A century ago China stubbornly stuck to a silver standard for its currency while the USA, British Empire, and Japan chose gold to back their currencies. The decision to stick with silver may have led to the rapid deterioration of China's preeminent position in trade, the collapse of the ancient Qing Dynasty, and the Chinese civil war. Earlier this year Beijing revealed that it quietly added to its gold reserves for years and that China had amassed over 1,000 tons giving it the world's 5th biggest gold stash. The faded great powers of Europe (Germany, France, and Italy) still have more but the USA is tops with nearly 9,000 tons in Fort Knox and Wall Street vaults.

Remarks by Ji Xiaonan, a senior mandarin at the Chinese State Council's State-Owned Assets Supervision & Administration bureau, reveal that Beijing may aim to displace the USA and own 10,000 tons of gold within less than a decade. Ji Xiaonan was quoted in the highly influential Economic Information Daily in late November. The newspaper dates back to 1981 and is often used to air visionary ideas on central government policy. Ji said that within only 3 to 5 years China could accumulate 6,000 tons of gold which would put Chinese reserves ahead of all nations but the USA.

Beijing's method of acquiring additional gold is not to buy directly on world markets but to mine it. The surprise increase in Chinese official gold reserves came from domestic purchases and Beijing is pushing for acquisitions of foreign gold mines. And so today in Canada mining stocks rose on news that Tongling Nonferrous Metals Group and China Railway Construction Corp. will take over Corriente Resources a Vancouver based mining conglomerate with interests in gold mining in Ecuador.....

A Chinese investment house, possibly China International Fund, will invest up to $9 billion (US dollars) to create a joint national mining conglomerate with the government of Guinea on the coast of West Africa. Guinea is already a leading source of crude oil for China and is believed to have significant deposits of bauxite, gold, and diamonds. The USA and Russia are also active in Guinea but the creation of the joint mining company intended to control all mining in the country will give China a distinct advantage. In addition China will invest billions in developing Guinea's infrastructure....

In less than a 48 hour period, the western American states Nevada and Colorado signed investment deals with Chinese state and business delegations. Nevada's governor is a Republican and Colorado's a Democrat so the desire to bring China in is a bi-partisan affair.

The various deals planned are around investment in clean tech or alternative energy including the possibility of Chinese solar firms setting up factories and power plants. Interestingly, one of the areas singled out for Chinese investment is mining. Both Nevada and Colorado are centers of gold mining in the USA. Nevada is by far the leading gold producing state....

A swirl of pitches from "gold bugs" and currency commenters say China is buying gold and so should you. The excited headlines are based on various remarks by former and current Chinese government officials on Beijing's concern over the health of the almighty (US) dollar. Many of the remarks most often cited were said over the past year and some date back several years.

It is true Beijing is buying gold from domestic production, slowly, and some say secretly - initially off the official statements of the People's Bank of China. But the amount of gold held is a tiny fraction of the $2.13 trillion (as of 6/30/2009) foreign exchange reserves Beijing holds.

Will China switch to a gold standard? That question has tantalized speculators on and off throughout history. Little more than a century ago, Beijing's decision to not follow the USA and Japan with a gold standard may have contributed to the collapse of the Chinese currency (based on a silver standard) by the 1940s.

One thing stands out - talk of internationalizing Renminbi is everywhere. Henry Kissinger predicted on Bloomberg TV just a few weeks ago that an alternative international currency will probably emerge based around the Yuan. Investment guru "Dr. Doom" Marc Faber once predicted that the world's finances would become based on the dollar, euro, Yen, Yuan, and gold.....

[CORRECTION: Reuters reports that the People's Bank of China will use Yuan not dollars to buy the IMF SDRs.]

In a move celebrated by the IMF, the Chinese central bank will convert $50 billion into SDRs or Special Drawing Rights bonds. SDRs are based on a basket of convertible currencies and were created by the IMF in the 1970s to convert away from gold. Whether SDRs convert as easily into gold is another matter for speculation. Whether SDR or gold, this is further evidence of Beijing's unease over its world's largest holdings of US dollars.....

The USA Treasury will sell $75 billion in bonds next week and has promised to include more TIPS or Treasury Inflation Protected Securities. Speculation is that Beijing requested (demanded?) more TIPS in the mix of sales although Treasury refuses to comment when pressed as to whether China was behind the new emphasis on longer term TIPS including the possibility of 30 year bonds.

Meanwhile gold output rose over 13% in China for the 1st Half of 2009 to 146.5 tons. It is widely believed that Beijing buys most if not all domestic gold production. That leaves open speculation that Chinese gold reserves have grown by over 146 tons already this year....

US House of Representatives member Mark Kirk, Republican from Illinois, talked to FoxNews about his recent trip to China and said China plans to buy $80 billion (US dollars) of gold. In addition to this bit of news, Congressman Kirk claims mandarins in Beijing told him that they were losing confidence in the dollar....

After weeks of speculation, it's official: China gold reserves increased and China now holds more gold than Switzerland. The US, Germany, France, and Italy still hold far more gold but the acknowledgement by the head of the aptly named SAFE (State Administration of Foreign Exchange) lead many to believe that Beijing may soon buy gold. The last reported figure for China's gold reserves was in December 2002 at approximately 600 tons. The new figure is 1,054 tons of gold and Beijing says the increase came from domestic sources. China is the leading gold producer in the world and could easily increase its gold reserves from its own mines. The planned sale of IMF gold however could proved tempting.

Meanwhile gold price rose today to a 3 week high...

The Chinese central bank (the People's Bank of China) reported yesterday that official foreign exchange reserves continue to grow - albeit more slowly - and passed $1.95 trillion (US dollars) at the end of March. Most of the Chinese hoard is denominated in dollar bills but rumours persist that China is interested in all of the anticipated IMF gold sales of over 400 tons ....

The G20 summit hopes to pump $1 trillion (US dollars) into the IMF and World Bank. Word is the IMF will be allowed to sell some of its gold reserves to fund initiatives to help the world's poorest over the short term. Speculation by some analysts are that IMF gold sales will be off-market and outside the West's Gold Agreement and give nations such as China burdened with excess dollar reserves a chance to diversify into gold...

The Beijing Ministry of Industry and Information Technology says consolidation is desired in the gold producing businesses, perhaps as part of the overall "reinvigoration" of China's economic sectors. The goal is add up to 800 tons of gold reserves and increase production further. China surpassed South Africa as the world's biggest gold producer in 2007. Unknown is whether the increased production will be added to China's official gold reserve holdings currently 9th largest in the world although only a small fraction of the gold held by Europe and the USA...

The Hong Kong Standard asserts that China may up its gold reserves to close the gap with the US. Beijing's offical gold reserves are a mere 7% of Uncle Sam's hoard. Beijing has moved to diversify its foreign exchange reserves (world's biggest) into other currencies but China's reserves are still mainly denominated in the dollar and used to buy mostly USA Treasury debt. Given the admitted lack of transparency now in Washington's financial picture thanks to Wall Street corruption, it would not be a surpise if Beijing began to move away more quickly from the dollar. Noble winning economist Robert Mundell who advises the Chinese government was overhead at a confab saying that Beijing should buy IMF gold holdings. China may announce its readiness to support IMF's balance sheet at the G20 summit this weekend. Would gaining IMF gold be part of any financial assistance?

In Sao Paulo this week China's Central Bank chief Zhou Xiaochuan hinted that China may allow the Yuan to depreciate in order to do whatever it takes to support Chinese exports. Meanwhile Canada is ready to pressure China to appreciate the Yuan at the G20 summit. Interesting times...

The coordinated rate cuts by central banks around the globe today included China. The faded G7 powers and their corporate and state-owned (BBC, for example) press still view the so-called "subprime," "credit," "liquidity," financial crisis as an Atlantic Alliance issue. Nothing could be further from the truth. China is at the core of the financial system as much as the USA since they both depend on the "Bretton Woods II" regime of financing trade deficit with borrowed dollars. For years the USA has agreed with China that 'you buy our goods, we buy your debt.' That system is now unravelling.

A week ago the President of France Nicholas Sarkozy said "Laissez-faire is finished." He joined the call first made last year by outgoing German Chancellor Gerhard Schroeder for a G7 summit to fix the world's financial mess.

But what we really need is a Bretton Woods III conference where the USA, the EU, and China sit down and hammer out what the world's financial future will be. Certainly rich holders of dollars such as Japan, Russia, and financial centers of the Middle East should be there too as important participants.

If the future will be multipolar balanced by the dollar, the Euro, the Yen, Renminbi (Yuan), and Gold, as famous gloomsayer Mark Faber forecasts, then we need to get together now to craft a new system.