How much gold is still at Fort Knox? Who knows? The last audit of gold stored at Fort Knox was back in 1974. We do know this – China has now become the largest gold producer in the world surpassing the US, Australia and Russia.
This year China will pass up India as the world’s top gold consumer. China said that in 2009 its official reserves of gold stood at 1,054 tons; it hasn’t published updates since then. Precious Metals Insight, a Hong Long based consultancy, estimates that the central bank of China bought 300 tons of gold in the first half of 2013.
Throughout the tumultuous decade, Gold has been flowing from the West to the East. Why should we care? Because in the world of geopolitical influence and economic warfare, the country with the largest stockpile of gold will exert the greatest influence on the economies of other nations.
Unlike the US, China plans for the long term. Its policy and economic strategy is based upon a five year, ten year and 20 year plan. As a nation, we can’t even see past the next quarter. And our government only reacts to a crisis, it never anticipates one.
If we continue down the current path, the future might not look so bright. What does all this have to do with gold? China is looking way down the road. And what they see is a looming currency crisis. As the world’s largest holder of US dollars, China is worried. They can’t dump their dollars on the world markets because that would cause the dollar to fall and they would lose a bundle.
So China is converting its dollars into gold as a store of value. They are also on a buying spree. China is plunking down billions of dollars (diversifying out of US currency) around the globe. From Africa to South America, China is loading up on natural resources, and purchasing companies that extract minerals, rare earths and basic industrial materials.
The Chinese people save a heck of a lot more than we do. The Chinese government is encouraging its citizens to store their savings by purchasing gold. Gold vending machines are popping up all over China. Savings for a rainy day might sound corny to some. But you can’t keep an economy running forever by conspicuous consumption.
Unless the US adopts a strategy to encourage saving rather than spending, we are going to eventually run out of money. And we won’t be able to print our way out of the mess as we have been doing since the early 1970’s. Why? Because the reserve status of the US currency which has allowed us to spend more than we make for decades, will come to an end (more on this in another post). And China will be sitting pretty with all that gold (store of value) and a lot fewer dollars.