Gold analyst predicts "earthquake" announcement from China in 2014 - Wealth Managers

Rumors of bullion-backed yuan grow as Jim Rickards predicts Beijing has amassed 5,000 tonnes

"In our base case we are looking at the gold price to reach about $2,000" in coming years and as high as $5,000" by 2020 in a bull-case scenario, predicts Yan Chen of Standard Chartered Equity Research in a July 18 Bloomberg interview. Supply crunches due to rising mining costs, central-bank buying, and -- most importantly -- continuing demand in China and India will drive gold, Yan says.

But the Chinese aren't just buying gold on the individual level. According to one source, its government also is accumulating large amounts of gold, writes Marina Maksimova in a July 17 report at Russia Beyond the Headlines.
 "The People's Bank of China is mulling the possibility of phasing out the dollar as the reference currency for the yuan exchange rate, and to start using gold as the reference point.

"The reports have not been confirmed officially, but analysts are warning that the step, if taken, will weaken the yuan and destabilise China's already troubled economy, ultimately provoking a new bout of the economic crisis worldwide.

"Beijing's possible move to back the yuan with gold would not be meant as a strategic measure to strengthen the national currency and increase its attractiveness as an investment medium. Rather, it would be a flaunt aimed at demonstrating to the world (and to the USA in particular) that China is capable of taking the risks associated with a departure from the dollar standard." 

Whether or not China will take that dramatic step, one respected analyst thinks Beijing will make a major announcement about its gold holdings next year.

"If you're China, the last thing you want to do is be transparent about your gold purchases, because it will drive the price up," says Jim Rickards of Tangent Capital. "The U.S. has 8,000 tonnes of gold; 17 members of the euro system have 10,000 tonnes. China at 1,000 tonnes is not a player, but at 5,000 tonnes, they are a player.

"But I have spoken to a number of sources in Asia. I've spoken to a number of people who are very close to the physical market. I've done my own investigations. Every time I have an estimate and try to verify it, what I get back is that I'm wrong on the low side."

He expects that come April 2014, China will announce that its gold reserves have grown to 5,000.

"That should be an earthquake because even the gold deniers, the gold doubters, are going to have to sit up and take notice," Rickards says. "Either the Chinese are dopes, which they're not, or people will start to get gold, which I think they will."

If these scenarios played out, gold would go a lot higher -- as high as $4,000 in a very short time. The winners will include those who hold gold. "That's going to be a very small minority. It's a small minority today. It might get a little bit larger, but that's not most of the population."

China isn't the only Asian nation pursuing gold. After announcing that its holdings rank No. 39 in tonnage, South Korea said Monday that it will open the gold exchange next year where gold spots can be traded in the public market.

The trend is clear: Gold is very important in Asia and will continue to be, to China's advantage and perhaps at the eventual expense of the U.S. dollar hegemony that has been unquestioned for decades.

More information can be found online at http://www.goldbullionadvisors.com