In a July 18, 2015 interview, Stephen Leeb, Chairman and Chief Investment Officer of Leeb Capital Management, talked about Chinese gold reserves and predicted gold prices hitting $15,000 an ounce and all commodity prices taking off.
The Chinese just released a report on their gold holdings, which claimed they have 1,658 tonnes of gold.
“Is it believable that [1,658 tonnes] is all of the gold they have immediate access to?” Leeb asked. “No. That’s preposterous.”
Leeb explained that China has many banks outside of the Chinese Central Bank, which may have a tremendous amount of debt, [with] creditors who are underwater.” He argued that “They may be holding massive, massive, massive reserves of gold.”
Leeb argued that the Chinese report did not make logical sense. From January through May, the Chinese reported that their gold reserves remained the same at 33,890,000 troy ounces. Then suddenly in June they added 20 million troy ounces.
“So,” Leeb said, “all the buying over the past five years has been in June; a month when gold went down….How do you buy 600 tonnes of gold and gold goes down?” Leeb said such an outcome was “Not possible.” He argued that the only place the Central Bank could have purchased the gold from to have the price fall was from their member banks. Leeb believes that there is a fantastic amount of gold in the Chinese banking system, just not concentrated in the central bank. But, he warned, remember that all Chinese banks are controlled by the state.
The June increase took Chinese gold holdings slightly above the Russians, but still below the US, and even still below Italy.
The Chinese goal is to make their currency a reserve currency backed by gold. Therefore, they are building up a gold reserve to back up the yuan as a reserve currency. Leeb warned that people who think the report is evidence that the Chinese never had that much gold are in for a “big surprise in October or November,” when, he predicted, the Chinese will start adding gold hand over fist.
How much gold do the Chinese have?
Leeb believes they have “significantly more than the US claims,” which is 8,000 tonnes. The Russians say the Chinese may have 30,000 tonnes. Leeb said, “I don’t necessarily believe that,” but he would not be surprised if they have 15,000 tonnes.
What does such a large amount of gold mean?
“Think of the influence they have which no one knows about,” Leeb warned. That amount of gold gives the Chinese the ability to reduce volatility and raise prices. If gold increases to $10,000, “What kind of wealth effect is that having for the country? It is unbelievable.” All of a sudden everyone in China, he said, especially the banks, are that much wealthier.
Leeb contrasted the Chinese approach with US, which has tried to raise the wealth of the country by printing money. Printing money has caused the stock market to rise. In contrast, the Chinese are building wealth the hard way, by raising the price of a hard asset: gold. China now has a lion’s share of the gold in the world.
Leeb predicted, “You’ll see gold go to $10,000 or $15,000 in a heartbeat.” He believes the Chinese strategy is “a masterstroke.” They have convinced the world that they haven’t been accumulating massive amounts of gold.
Although the Chinese government misjudged the propensity for gambling in stocks of their people, Leeb does not believe the Shanghai stock market will rise quickly or high, because that is not the Chinese strategy. “It’s going to calm down.” He warned, “The wealth effect for China is not the stock market; gold is what the Chinese consider to be wealth.”
Leeb believes the Chinese want a quiet market until October or November when the IMF will make its decision about the yuan as a reserve currency. Then he expects “All commodities are going to fly, sooner than later. I am so bullish over the next 10 months for virtually every commodity.”
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