For years, China has longed to be counted as a global economic superpower. Now that they’re creating a massive new gold fund, is the writing officially on the wall?
We’ve already written extensively about China’s recent efforts to establish themselves as a major financial superpower. Now comes news that the nation is planning to use massive amounts of gold to boost its trade.
The Telegraph’s Andrew Critchlow reports that China plans to establish a gold fund worth a whopping $16 billion for the purpose of stockpiling the metal. China already holds a huge amount of gold. Although official figures place their reserves at just over 1,000 tonnes, speculation is that they hold much more – at least three times as much gold. This new project, which would just add to whatever sum they already have on hand, would allow the nation to further bolster its financial status around the world, and also improve various facets of its economy and trade.
Among several entities contributing to the fund, Shandong Gold Group and Shaanxi Gold Group thus far appear to be the largest, with stakes of 35% and 25%, respectively. The target goal of $16 billion will be raised over the course of three tranches. Critchlow reports that this may be accomplished at least in part in two ways: (1) creating an exchange traded fund for gold and (2) investments into miners of gold.
While the use of gold to gain more power is nothing new for China, an additional $16 billion spent on the precious metal will certainly raise some eyebrows around the globe, especially considering the country’s long-held position as one of the world’s top gold consumers. Critchlow is quick to point out that China plays a significant role in determining the trajectory of the gold market, and that the new initiative will only increase that influence.
According to Critchlow, “News that China may be poised to establish a major new investment vehicle focused on gold could provide a significant boost to the market, which has seesawed amid uncertainty over the timing of the Fed’s expected rate rise.” Even without China’s new investment plan, some financial analysts, such as Germany’s Commerzbank, have already predicting that gold would increase to $1,250 by the end of 2015, as uncertainty over the Federal Reserve’s decision fades away. However, there’s no telling yet how high the price might go once the Chinese gold-acquisition process is underway.
The “gold fund” is actually only part of a very bold plan by Beijing meant to create an entirely new economic bloc in Asia and Europe. The plan – called “Silk Road” or “One Belt – One Road”, could double China’s economy over the next decade – at least that’s what Chinese president Xi Jinping is hoping for. Jinping stated that, should everything go as planned, “Silk Road” will generate $2.5 trillion of additional trade in that time.
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