Courtesy of Mish.
Reader Jason pinged me with a MarketWatch article Will China Drop Gold Next? by writer Craig Stephen.
Stephen notes that for the first time, Chinese demand topped 1,000 tonnes, reaching 1,176 tonnes after a 41% year-on-year gain, not including central-bank buying and that “investors have done well in the past with a simple strategy of buying what China was buying.“
Stephen also cautioned about a “worrying explanation” that “a big chunk of China’s gold demand is the spectacular growth in China’s shadow banking, for which that the government is now trying to apply the brakes.”
If so, Stephen claims that “raises the possibility of a gold crunch, depending on how the People’s Bank of China flushes out the yuan carry trade by orchestrating a weakening in the Chinese currency.“
Does the Story Make Any Sense?
Reader Jason wonders “if the story makes any sense.”
The answer is “Yes” and “No”.
Given what happened with copper, no one should be surprised if shadow banking operations in China used gold for the same purpose. But does that mean or imply a “possibility of a gold crunch“?
For that, the answer is no.
Shadow Banking Demand Story a Big “So What?”
Here are comments from Pater Tenebrarum at Acting Man, via email
This story is a big ‘so what’? …
