Tag Archives: Lloyds

Riding the golden tiger

Back in the late 40s when Thailand was more whimsical and less bloody, there was a curious hijacking. Cargoes of gold frequently flew through Krungtep [the Thai capital] for sale in China. There hyper-inflation – more potent than Communist arms — was toppling the Nationalists. The economic meltdown was the last straw for Generalissimo Chiang Kai-shek’s fragile regime which had stood alone for so long before Pearl Harbor.

Washington’s refusal to make a $500 million gold loan helped clinch Chiang’s fate. General U.S. war debt fatigue, Kuomintang corrupt reputation and a Congress faced with a wartime economy being restructured brought the decision. But we now know it stemmed, too, from Treasury officials with too close connections to the Soviets and budding Communist power in China.

Still, gold in a steady stream cascaded into the Chinese private sector. Shadowy international gold merchants were satisfying Chinese savers’ quest for security in a world coming apart. Little did they know within less than a decade, Mao Tse-tung’s bloody “land reform” would not only snatch their gold but his programs eventually would cost as many as 70 million lives of those who could not flee to Taiwan or beyond.

But in those heady days international trade was recovering from World War II. Early intercontinental flights, with no nonstops nor even night flying, carried the gold across South Asia. When it arrived at its last stopover at dusk, it was unloaded at Don Muang airport, convoyed into the Bank of Thailand, then brought back the next morning, reloaded to go on to Hong Kong.

One evening in May 1948, a multi-million dollar [1948 dollars!] shipment disappeared. The mystery was never solved. With occasional bars turning up, rumors had it that the gold had been stolen by Thai police guards or the army or airport officials — or maybe just ordinary ever-present k’moi [robbers]. As the last rumors died away, it was said, never with confirmation, that Lloyds, the insurers, had done a deal, splitting the difference with the thieves.

That old gold piracy comes to mind in mid-summer 2010 as Beijing announces “liberalization” of gold sales.

Like most of Beijing’s policy announcements, the message must be taken with more than a grain of salt. The new Chinese regulations come at a time when Western gold fever, at least temporarily, had died down a bit. “Gold bugs” have now concluded that, counterintuitively, central banks are not rushing into gold as a hedge against the declining dollar and the debt-ridden Euro. There is even a rumor the Reserve Bank of India mortgaged last November’s 200-ton purchase from the International Monetary Fund to “the world’s central banker”, the Bank for International Settlements, for currencies to fight its roaring 10% inflation. Nor is there any hint China is boosting bullion reserves despite Beijing’s steady public skepticism of the Obama Administration’s dollar strategies.

But popular gold demand in China has grown in 2010. China doesn’t officially disclose gold imports. However, total volume traded the first six months on the Shanghai Gold Exchange jumped 59% from a year earlier. China’s already has the world’s sixth largest hoard at 1,054 tons.

The usual suspects – gold promoters and participants in China’s boom — have welcomed the new regulations as part of China’s promised liberalization. That echoes Beijing’s rhetoric — if little action — its response to pressure from its trading partners to curb its unprecedented dollars accumulation resulting from currency manipulation and export subsidies.

Now the People’s Bank said it would “actively push infrastructure for gold trading and reserves to fend off disasters”. Underlining the announcement, five other government entities countersigned, saying “the need to perfect foreign exchange policies in the gold market is clear.”  But the government also hinted at more bullion taxes and dropped is earlier partial endorsement of gold as investment.

What seems more than likely is that operating again in omnipresent corruption, Beijing is battening down the hatches with what are, in reality, new controls, attempting to prevent a stampede by savers into gold. What with growing suspicion of its debt-ridden banks and investors shying away from the Shanghai stocks casino, gold fever increasingly has gripped those Chinese who can’t get their funds out of the country through massive export/import manipulation. Total 2009 consumer demand for gold – mostly for jewelry, a traditional Asian way of saving — grew 7 percent to more than $14 billion, 11% of global demand. China now has become the world’s second largest customer after India as well as the No. 1 producer. Its hoard is the world’s sixth largest at 1,054 tons.

Simultaneously Chinese spindoctors argue that gold is not all that useful. Why then does Beijing announce expansion of its own market? The big four state-owned banks will be permitted trading in gold bars. Qualified foreign gold suppliers may be allowed into the Shanghai market. Plans for investment in foreign bullion are on the docket. All this looks like Beijing’s familiar way of attempting control in finance and manufacturing through government fiat.

No doubt Beijing remembers those old frantic post-war years. But Confucius say: he who rides back of tiger may end up inside belly.