vrijdag 28 maart 2014

Chinese Commodity Financing Deals

Just wanted to point to an article that documents the very complex theory of Chinese Commodity Financing Deals (CCFD), which started in 2012.

Basically, China manipulated the paper price of gold down to create excessive physical gold demand we saw in 2013. China is the culprit and it's my job to get this out in the media. This is the only reason how gold prices didn't go up while physical gold demand was up. You would think when China unwinds, won't this excessive physical demand slow down and send prices lower? The article apparently says that prices will go lower for copper and other commodities, but not for gold.

So, when China collapses and needs to unwind all of these trades, they will have to buy the paper price again which will send gold higher, back to the 2012 level. The opposite happens with the copper price, which will go lower.

Another very important conclusion is, when China collapses, then China won't be able to do these CCFD's anymore, which will mean that gold manipulation will end (at least from China's perspective). This could be bullish for gold as I pointed out already in another post: "When China Implodes, This Might Be Bullish For Gold".

I'm just summarizing that article, it's too complex for me to understand for now.

Now what's more important to us is: "How do we spot the unwinding of China?". Obviously, the unwind will mean that the yuan collapses, so we look at the forex market.

You can see the collapse starting in 2014. And lo and behold, which commodity soared in 2014? Gold. Which commodity collapsed? Copper.

And with our correlation between trade and currency in mind, we know that when a currency collapses, the trade numbers will go from surplus to deficit, which means imports are higher than exports. So we also need to monitor the trade numbers of China.

Goldman Sachs says this unwinding will have a time frame of 24 months.

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