How China’s Attack on the US Begins

The thing about black swans is that they’re not so much black as they are invisible. And therein lies the big problem: How do you gauge the risk of what you cannot see?

Of course, everyone uses the term “black swan” incorrectly. They talk about this and that and some other thing being a potential black swan. No, Alice—it is not a black swan if you can see the potential for it happening. Black swans are not predictable. They come out of nowhere, when no one expected them to even exist, to upend the status quo.

I’m guilty of that myself in today’s dispatch because I’ll be focusing on a potential event that has the power to shake the financial world violently. I’m using the term black swan only because that’s what the rest of the media will call it when it happens.

The event in question: China reporting that it owns vastly more gold than the world now assumes.

While that might sound like sexy talk for a bean counter, the news would come as a bombshell to the financial markets because it would imply that China is well-prepared to take down the US dollar—as I’ve been predicting for 15 years now.

Recent news indicates that China has been a buyer of gold over the last six months, and that the country now officially owns 2,230 tons of gold. That’s according to stats from the World Gold Council, which also claims the US officially owns 8,133 tons, the (supposed) largest gold holdings of any country on the planet.

But China’s official number is about as accurate as claims that the moon is made of cheese.

Unofficially, the number is vastly larger.

I started writing on this idea back in 2011 or 12. I and a researcher on my team at the time were pulling customs import records out of Hong Kong, which, in its anally British Empire-ness, does a fantastic job of tracking every bit and bob and ounce of gold that enters or exits China.

What we found were tons of gold coming into China, typically by way of Switzerland, and very little gold (read: basically none) leaving China.

Moreover, China has ranked as the world’s #1 gold miner for years and years and years, and again very little of that gold, if any leaves the country.

I’ll spare you all the math and whatnot and just tell you that, based on imports and mining and the amount of gold withdrawn from the Shanghai Gold Exchange over the years, the likelihood is that China owns between 12,000 tons and as much as 30,000 tons of gold.

Not only is that “vastly” more than China’s official gold holdings, it’s vastly more than what Uncle Sam purportedly owns.

And therein lies an event that many in the traditional media will label a black swan, but which I am now telling you is possible/probable…

But pray tell, El Jefe, why-for does China owning more gold mean anything to anyone?

Gold, as I know you know, is the ultimate anti-dollar asset.

For Americans who spend dollars daily, the dollar declines relative to our cost of living… i.e., relative to inflation. Gold rises in value alongside the cost of living, meaning gold rises relative to the dollar.

If you’re a non-American, your interest in gold is tied to the fact that gold generally rises as the dollar generally declines. In essence, gold is a hedge against a dollar crisis.

So if we assume that, unofficially, China owns between 12,000 and 30,000 tons, then that would imply China’s real gold holdings are worth somewhere between $1.5 and $3.7 trillion dollars.

Big numbers, but they mean nothing without context.

The context: China owns about $750 billion worth of US Treasury debt.

All the blinkered pundits in America regularly scoff at the idea that China would wholesale dump its US debt because doing so, they wrongly insist, would hurt China more than it hurts the US.

Wrong again, Alice…

Let’s play this through. We will assume China dumps all its Treasuries in one, fell swoop. What happens?

• The supply of Treasuries for sale on the global market surges.

• Supply v demand says that too much supply sends prices lower, so Treasury prices fall.

• In the bond world, falling prices mean higher yields, by definition. (Mathematically, as a Treasury bond’s price declines, its yield rises).

• Rising Treasury yields force Uncle Sam to pay higher interest rates to sell the debt he needs to sell to keep the country running.

• But higher interest rates would send the global bond market into a tizzy because the US is already struggling to deal with higher interest rates, extreme levels of debt, and a White House that is hellbent on blowing out the debt even more (Trump’s “Big, Beautiful Bill” will add between $4 trillion and $5 trillion to the national debt, 15% of the current debt. That’s according to non-partisan research).

• The dollar is already losing value globally to other currencies and to gold, and China dumping all of its Treasury paper at once would create extreme fear. The dollar would tank.

• Gold would soar.

• And any loses China takes on by dumping its Treasuries would pale in comparison to the profits the country would see in its gold holdings.

As I’ve stated before, China has built the world’s largest anti-dollar hedge fund, and very few people in America recognize this, including those who should have a clue.

This is not a guess. The numbers tell the story.

Officially, they might not, but everyone knows China’s official numbers don’t always align with reality, for political reasons.

China’s gold imports, mining, and gold-exchange withdrawals all loudly exclaim… “China’s prepping for something big.”