FLASH: China knows about gold price suppression, and U.S. knows China knows

6:47p ET Saturday, September 3, 2011

Dear Friend of GATA and Gold:

China knows that the U.S. government and its allies in Western Europe strive to suppress the price of gold, and the U.S. government knows that China knows, according to a 2009 cable from the U.S. Embassy in Beijing to the State Department in Washington.

The cable, published in the latest batch of U.S. State Department cables obtained by Wikileaks, summarizes several commentaries in Chinese news media on April 28, 2009. One of those commentaries is attributed to the Chinese newspaper Shijie Xinwenbao (World News Journal), published by the Chinese government's foreign radio service, China Radio International. The cable's summary reads:

"According to China's National Foreign Exchanges Administration, China's gold reserves have recently increased. Currently, the majority of its gold reserves have been located in the United States and European countries. The U.S. and Europe have always suppressed the rising price of gold. They intend to weaken gold's function as an international reserve currency. They don't want to see other countries turning to gold reserves instead of the U.S. dollar or euro. Therefore, suppressing the price of gold is very beneficial for the U.S. in maintaining the U.S. dollar's role as the international reserve currency. China's increased gold reserves will thus act as a model and lead other countries toward reserving more gold. Large gold reserves are also beneficial in promoting the internationalization of the renminbi."

"Wondering why gold at $1,850 is cheap, or why gold at double that price will also be cheap, or, frankly, at any price? Because, as the following leaked cable explains, gold is, to China at least, nothing but the opportunity cost of destroying the dollar's reserve status. Putting that into dollar terms is, therefore, impractical at best and illogical at worst. We have a suspicion that the following cable from the U.S. embassy in China is about to go not viral but very much global, and prompt all those mutual fund managers who are on the golden sidelines to dip a toe in the 24-karat pool."