Bet 636

Duration 4 years (02012-02016)

“By the end of Obama's second term as President, The Central Bank of China will publicly announce that they have an amount of gold in reserve that is greater than Germany's.”

PREDICTOR
zeev kirsh

CHALLENGER
Unchallenged

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Kirsh's Argument

1) China central bank has been openly buying gold on the free market for years now, signaling long term accumulation.

2) The Chinese Central Bank has openly announced their desire to spread the usage of the yuan as a reserve currency, requiring them to take steps towards legitimizing the yuan for trade. Accumulating gold reserves is one of these steps. Germany reports as the second largest owner of Gold in the World, behind the U.S. at 8000 or so tonnes. China is openly in competition with the U.S. and seeks to 'catch up' in as many areas as possible. This includes their attempts at strengthening their central bank by increasing the Gold reserves in order the persuade non-Chinese countries to accept their currency as a reliable medium of exchange. (While unlikely they will surpass the U.S. gold hoard in this time frame, this is also possible and in doing so would almost definitely surpass the German Gold Hoard)

3) China is the biggest miner of gold in the world and their gold mining companies do not sell gold outside of china. Reportedly, the Chinese central bank has long term contracts forcing these miners to provide gold at cheap guaranteed levels to the bank.

4) China has not reported their Central bank gold reserves since 2009, signaling that they may be trying to limit the attention to their gold transactions. Hiding this number would make more sense if they were accumulating gold, as they would not want to advertise to other speculators their long term plan to buy gold for fear of inducing higher prices. If china were selling gold, they would have less of a reason to hide this number as gold is in a long term bull market.

5) The central bank of china has complained numerous times about u.s. debasement and has announced their desire to protect themselves from u.s. debasement by diversifying into commodities and companies. Gold is a non-debt commodity asset that helps protect the chinese central bank against the deteriorating value of their U.S. debt instruments . Buying more gold is simply a method of side-stepping inflationary policy of the federal reserve and one more thing to do with the proceeds of their sale of U.S. treasuries.

6) The Iranians are besieged and are reportedly trading their oil directly for gold through various conduit countries like qatar , with oil purchasers like turkey. China has historically purchased oil from iran and continues to express its desire to do so. Under this circumstance china would require gold , food, or industrial commodities to trade with iran for oil. As Iran has reportedly taken gold for oil from Turkey, it is possible that China is accumulating as much gold as possible for use as direct barter, or to back their own notes, the yuan, for purposes of trade with iran. A direct yuan for oil trade would imply that is accumulating rather than selling off Gold.

****7) GATA {gold anti-trust association} conspiracy supports the notion that reported GOLD reserves are inaccurate and this supports the idea that China and Russia are rapidly accumulating gold. GATA has approached the u.s. regulatory agencies numerous times alleging that gold prices have been actively surpressed by a Cartel of the large money center banks in New York and London, as well as by the U.S. treasury, the exchange stabilization fund, and by various agreements between american and european central banks ever since Nixon announced that the U.S. would not sell gold for dollars, and that gold could be legally traded on free markets.

Gata's allegation are backed up by ample evidence supporting the notion that GOLD has been oversold , manipulated , rehypothecated (pledged as collateral for multiple debts) and influenced in various other schemes. If the allegations are true, then there is far less GOLD out there than the west claims to possess and this would cause a rush of investors to try and accumulate gold. The Chinese central bank --and others---would be these investors; they would want to accumulate physical gold reserves in this scenario to make themselves stronger as a central bank.

Further European Stories underscore the rapid deterioration of trust, even amongst and between formerly trusting western governments.

Recently (Nov 12') the german Bundesbank and parliament have requested that they be allowed to inspect their gold that is forcibly held at the federal reserve bank of new york for them. The federal reserve has agreed to give them back 50 tons of gold per year, but refuses to let them inspect the remained of the 1500 tons of gold being held at the fed. Speculation is that the federal reserve no longer has the full physical amount of foreign held gold and will only return the gold on a basis that does not shock the markets.

China is certainly paying attention to these developments and knows that accumulating gold is the strong move for their central bank. Thus they are likely accumulating gold.

8) (supplemental) historians point to the importance of gold in times of stress. National treasuries have repeatedly been looted of gold during war times. The spanish civil war resulted in spanish gold going to moscow. World war 2 reportedly resulted in massive hoards of german and japanese gold going to the u.s. and london. The Coldwar resulted in soviet republic gold going to moscow.

Gold's value as a signifier of financial strength grows dramatically in importance during periods of military instability. We are experiencing a rapid buildup of global military supplies, one might call it an arms race. As tensions rise in many theaters of the world, and particularly in the middle east where China's oil supplier Iran, is threatened, the rising possibility for major conflict supports the thesis that China's central bank is making a massive push to accumulate an internationally respectable gold hoard. Such a hoard of gold would ensure their good credit with allies during war time.

8 ) FINALLY_-----------the numbers game.

major gold market consultants have openly predicted that china's demand for gold will rise to over 800 tons of gold in 2012, putting them as the biggest buyers of gold in the world. In cannot be reliably determined how much of this gold is for personal consumption rather than being purchased by the Central Bank of China. However, The Chinese Central Bank has not announced its gold reserves since 2009, when they were at 400 tons. To get past Germany at 3400 tons, they need 3000 more tons. From 2009 to 2016, The Central Bank would have had to accumulate an average of just over 430 tons per year. Chinese mines are producing approximately 300+ tons per year and it is well known that China is not selling this gold on the international markets.

assuming that the Chinese government is buying all this gold over 7 years , that adds up to 2100 tons, meaning that the chinese central bank has only a need to buy 900 tons on the open market over 7 years. thats only 130 tons per year. That is a lot of gold, but it is hardly earth shattering, and certainly in the realm of possibility. If China is buying over 800 tons per year of gold, and the central banks only needs 430 of those tons, than the Central Bank of China accounts for roughly half the demand of Chinese Gold purchases.

Considering that The U.S. government in 1933 outlawed the purchase and sale of gold entirely, and the possession of bullion gold for investment, it is hardly unbelievable that The Chinese Central Bank may be accounting for 50% of Chinese Gold Consumption.

and last but not least. The absolute last thing china wants is to hold 0% yielding debt , otherwise known as U.S. Dollars. They have over a trillion dollar hoard worth of treasuries. at around 1800 an ounce, gold is 60 million a ton. 60 billion per thousand tons. If they purchased all their gold at market prices ( even gold mined at home--which is highly unlikely to be purchased at market) ---this is less than 30 billion dollars per year. It seems unlikely that shortage of dollars would be a constraint on China's central bank for purchasing Gold. To the contrary, a surplus of dollars would support the proposition that China could Accumulate a huge hoard of a gold in a such a brief 7 year period.

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