The Big Bet on Gold

Jeff Clark |

I’m going out on a limb: I think the next bull phase in the gold market gets underway before October.



But not due to runaway demand…

At an International Monetary Fund (IMF) forum last month, China’s central bank governor, Zhou Xiaochuan, made it clear he believes the renminbi is “ready for reserve status.” It would be a huge step for the Chinese currency, starting with the fact that it would be added to the basket of currencies IMF member countries can include in their official reserves. Billions would be invested in it.

What was the IMF’s reaction? “We welcome and share this objective,” said IMF Managing Director Christine Lagarde. “We are now working closely with the Chinese authorities in this regard,” added Director of Communications Gerry Rice.

They didn’t say they would accept it, but then again, they surely wouldn’t advertise it in advance.

What’s the connection to gold? If Chinese officials seek “reserve” status for the currency, they’ll want to announce their updated gold holdings beforehand.

Why? Two reasons:

  • Currency strength. Demonstrating they hold ample gold reserves—certainly more than the official number of 1,054 tonnes—puts the currency on more solid footing. The IMF holds the world’s third-largest gold reserve, so this issue matters.
  • Transparency. A gold reserve announcement would help quell worries about the country’s lack of data transparency, something that’s been an ongoing concern.

Regardless of China’s motivation to announce its gold reserves, the IMF might require it anyway, as it’s been over six years since the last update.

The review process for admitting a new currency is held only every five years. I seriously doubt Chinese officials want to wait until 2020. Meetings will be held soon, with the results announced in October.

What’s Behind (Chinese) Door Number Three?

A recent Bloomberg estimate put China’s gold reserves at 3,510 tonnes, more than triple the old amount. If accurate, it would place China second only to the US, which says it has 8,133.5 tonnes. Other analysts speculate China holds around 2,100 tonnes.

I think the actual number is higher than either estimate. My guess is at least 4,000 tonnes (Jim Rickards thinks it’s 4,500 tonnes). If I’m right, and if Chinese officials do announce a new reserve figure before October, it could light a fire under the gold price.

A large increase is key, because even mainstream investors know that China has been buying a lot of gold. To really jolt the market, the new number must be a surprise—which is exactly what I expect.

Why? Many analysts overlook that Hong Kong imports are no longer a reliable way to measure China gold demand. China agreed over a year ago to import gold through numerous channels, such as banks, refiners, and even jewelry dealers. For this reason alone, I think China’s gold holdings are higher than what they think.

Of course, I could be wrong about a pending announcement. Buying Chinese government bonds still comes with a lot of restrictions, for example, which could keep the renminbi from being accepted by the IMF and eliminate the pressing need for China to declare its gold reserves. Or maybe the US—with the highest share of votes in the IMF—tries to block it from happening.

But most of the rest of the world is already on board, as evidenced by the whopping 57 countries that signed on to become founding members of China’s Asian Infrastructure Investment Bank. Furthermore, nearly two-thirds of the world’s central banks currently invest in the renminbi. And over 10,000 financial institutions already transact in it.

On top of this, China recently agreed to adopt IMF standards for reporting balance of payment data. And they just launched their own facility to fix the yuan’s value to gold. You wouldn’t take these kinds of steps if you didn’t want your currency included in the IMF basket.

So, I think it’s likely China will announce an updated figure on its gold reserves, and that it will be higher than the mainstream expects. If it makes headline news, it could ignite the gold price and give instant birth to a new bull market.

If I’m right, we obviously want to be positioned before it happens.

And if I’m wrong? It doesn’t really matter, because all the core reasons for owning gold remain intact and poised to turn into catalysts.

Harry Dent Has Accepted My Bet!

This is just one reason I bet Harry Dent about where the gold price is headed. He recently proclaimed that gold will fall to $700 in less than two years—and I say hogwash. I bet him a gold Eagle that it won’t, and he accepted, so our bet is live.

We battle it out in a new special report, a 17-page debate where each of us argues our case. You can read our in-depth report free of charge—just enter your email address here, and we’ll send it to you right away.

Which is more likely, inflation or deflation? Is gold destined to fall if deflation wins? Why has gold held strong in spite of a soaring dollar, and how will it perform if we face another crisis? Is a currency crisis really ahead? And how will production costs impact the price?

Read the eight “proof points” each of us offers, along with the details of our wager and the date the winner will be announced. We both think the report will help each individual investor make up his or her own mind.

It’s the battle of the year, with two ounces of gold on the line.

By Jeff Clark
Casey Research

I invite you to follow along in our “boxing match” and see who takes home the gold. Enter your email address and see who wins!


DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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