Zero Hedge has just outlined the scenario by which China and its many not terribly scrupulous entrepreneurs may obtained huge volumes of gold while selling gold futures to prevent the price from taking off over the last year.
The mechanism for the undertaking, Zero Hedge writes, was commodity funding deals in which any particular lump of a commodity may have been essentially mortgaged a few times simultaneously -- sort of like the Western central bank gold leasing system in which any particular ounce of the metal may be subject to multiple ownership or possessor claims.
Zero Hedge writes: "... [o]f all speculated entities who may have been selling paper gold (since one can and does create naked short positions out of thin air), it was likely none other than China that was most responsible for the tumble in price in gold in 2013 -- a year in which China and its billionaire citizens also bought a record amount of physical gold (much of its for personal use, of course -- just check out those overflowing private gold vaults in Shanghai)."
Zero Hedge's thrilling conclusion: "When we previously contemplated what the end of funding deals (which the People's Bank of China and the China Politburo seem rather set on) may mean for the price of other commodities, we agreed with Goldman that it would be certainly negative. And yet in the case of gold, it just may be that even if China were to dump its physical to some willing third-party buyer, its inevitable cover of futures 'hedges' -- that is, buying gold in the paper market -- may not only offset the physical selling but send the price of gold back to levels seen at the end of 2012 when China's gold commodity funding deals really took off in earnest. In other words, from a purely mechanistic standpoint, the unwind of China's shadow banking system, while negative for all non-precious metals-based commodities, may be just the gift that all those patient gold (and silver) investors have been waiting for."
Zero Hedge's scenario is speculative and complicated but it's an argument for the suspicion, expressed early in these dispatches, that the attack on gold last April would not have been possible without China's assent and that, indeed, given its enormous foreign exchange surplus, nothing happens in any major market without China's assent.
The Zero Hedge commentary is headlined "How China Imported a Record $70 Billion in Physical Gold without Sending the Price Soaring" and it's posted here:
http://www.zerohedge.com/news/2014-03-22/how-...record-70-bi...
These financial people are really clever -- but apparently not quite clever enough to figure out how they might do the world any good rather than just themselves.
