China’s Gold: A “Black Swan”?

goldbroker.com / Dan Popescu / May 11, 2015

I know. I am using the term “black swan” very loosely and I agree. According to Nassim Taleb to be a black swan event, it should be rare, have extreme impact and have retrospective predictability (though not prospective). However, I think China could shock the world when it announces its gold reserves. Something tells me it will have the same effect as the unpegging of the Swiss franc. Many called, also loosely, the unpegging of the Swiss franc a “black swan” event. Economists will come this time again with their statistical probability studies to show that it was a 35 standard deviation event and that such an event is likely about once every 140,000 years. I think any amount above 8,000 tonnes will be a shock in the central bank community and the gold market. Why is China accumulating so much gold? Why is China encouraging its citizens so hard to buy gold?

Being born and gone to school in a totalitarian communist country I know this massive gold buying by China is not a coincidence nor a free market choice. The images of a gold and jade statue of Mao Tse-tung worth more than $15 million in Shenzhen has an underlying message. It is the same as the picture of Vladimir Putin holding a 400oz gold bar in his hand. China is maybe not as totalitarian as it was during Mao’s reign but it still is very authoritarian. Nothing is permitted or as in the case of gold buying approved and encouraged by the powers in place without clear approval from the top. “Gold has always been, through the history of China, a way to project power,” says Kenneth Hoffman, a metals and mining analyst at Bloomberg Intelligence and I agree.

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