Well, now you can add gold fraud to the Wuhan woes coming from Communist China, and that at a time when the global economy is still reeling from the Wuhan media-driven hysteria and lockdownsm, and at a time that America is reeling from rioting and "alternative shopping" (looting), whose geopolitical consequences are already beginning to ripple around the world. (I discussed that geopolitical ripple effect briefly in the Solari quarterly wrap up just recently recorded, which will be out soon). C.S. spotted this story over at Zero Hedge and shared it, and it is a whopper doozie:
Now, sit down and pour yourself a couple of fingers of your favorite adult beverage, and contemplate some of the implications of this:
Yet one market which seemed stubbornly immune to any counterfeiting was that of physical gold in China, which was odd considering that over the past decade China had emerged as the world's biggest counterfeiter of various, mostly industrial metals used to secure bank loans, better known as "ghost collateral", and which adding insult to injury, would frequently be rehypothecated meaning often several banks would have claims to the same (fake) asset.
All that is about to change with the discovery of what may be one of the biggest gold counterfeiting scandal in recent history. And yes, not only does it involve China, but it emerges from a city that has become synonymous for all that is scandalous about China: Wuhan itself.
With that preamble in mind, we introduce readers to Wuhan Kingold Jewelry Inc., a company which as the name implies was founded and operates out of Wuhan, and which describes itself on its website as "A Company with a Golden future."
That's right, Wuhan is the epicenter not only of the Fauci-Lieber-Baal Gates virus story, it's also the epicenter of a gold fraud story. You might recall a few years ago I blogged about the fact that an amount of gold had been sold to China, which "gold" was discovered to be gold foil rapped around bars of tungsten. Then another story - again a few years ago - emerged of fake gold coins were being sold on the market which turned out to be tungsten centers cladded in gold. The problem there was that the coins appeared to have involved the Royal Canadian Mint directly somehow, though it was never made exactly clear. (Just for kicks and giggles, search for "Fake gold bars" on this website, and you'll see rough overview of the extent of the problem. For the Royal Canadian Mint story, see
But wait, there's more, because the fraudulent bars in this case were used as collateral for the issuance of loans, to the tune of - you can take a stout pull of the adult beverage now - $2.8 billion dollars:
In retrospect, it probably meant "copper" future, because as a remarkable expose by Caixin has found, more than a dozen Chinese financial institutions, mainly trust companies (i.e., shadow banks) loaned 20 billion yuan ($2.8 billion) over the past five years to Wuhan Kingold Jewelry with pure gold as collateral and insurance policies to cover any losses. There was just one problem: the "gold" turned out to be gold-plated copper.
Some more background: Kingold - whose name was probably stolen from Kinross Gold, one of the world's largest gold miners - is the largest privately owned gold processor in central China’s Hubei province. Its shares are listed on the Nasdaq stock exchange in New York (although its current market cap of just $10MM is a far cry from its all time highs hit when the company IPOed on the Nasdaq around 2010) . The company is led by Chairman Jia Zhihong, an intimidating ex-military man who is the controlling shareholder.
What could go wrong?
Well, apparently everything as at least some of 83 tons of gold bars used as loan collateral turned out to be nothing but gilded copper. That has left lenders holding the bag for the remaining 16 billion yuan of loans outstanding against the bogus bars. And as Caixin adds, the loans were covered by 30 billion yuan of property insurance policies issued by state insurer PICC Property and Casualty and various other smaller insurers.
And lest one think this is the last of it, then there's this:
As Caxin notes, the Kingold counterfeiting case echoes China’s largest gold-loan fraud case, unfolding since 2016 in the northwest Shaanxi province and neighboring Hunan, where regulators found adulterated gold bars in 19 lenders’ coffers backing 19 billion yuan of loans, or about USD $2.5 billion. In that case, a lender seeking to melt gold collateral found black tungsten plate in the middle of the bars.
In the case of Kingold, the company said it took out loans against gold to supplement its cash holdings, support business operations and expand gold reserves, according to public records. It then appears to have decided to apply a gold-layer to tons of copper and pretend it was money-good gold collateral. And even more shocking, for years nobody checked the authenticity of the pledged collateral!
What all this leads to is a rather disturbing conclusion:
The 83 tons of purportedly pure gold stored in creditors’ coffers by Kingold as of June, backing the 16 billion yuan of loans, would be equivalent to 22% of China’s annual gold production and 4.2% of the state gold reserve as of 2019.
In short, more than 4% of China's official gold reserves may be fake. And this assume that no other Chinese gold producers and jewelry makers are engaging in similar fraud (spoiler alert: they are.)
What all this leads to is the strong possibility that the vast Chinese economy is, to a great extent, based on massive fraud, based on fraudulent gold (which, incidentally, can be re-hypothecated so long as the fraudulent bullion itself is not detected). Is that conclusion unreasonable? Apparently not, for Zero Hedge comes to a similar position:
The above story is shocking in exposing just how multi-faceted fraud is in China: capitalizing on pre-existing cronyism and connections with China's powerful army, the founder of Kingold was allowed to basically do anything he wanted, no questions asked, including counterfeiting over 83 tons of gold bars to get billions in funds to participate in China's housing bubble, only for a series of unexpected events to unwind the frauds one after another and expose the type of sordid scandal that is at the heart of most Chinese "enterprises" and business ventures.
As for the gold, yes - several billion in gold bars never existed and yet resulted in a cascade of subsequent cash flow events allowing tens of billions in funds to be released, "benefiting" not only founder Jia, but China's broader economy. Which is, needless to say, terrifying: because whereas just after the financial crisis China was engaged in building ghost cities, everyone knew these were a symbol of demand that would never materialize, even if the cities themselves did exist. However, it now appears that a major part of China's subsequent economic boom has been predicated on tens of billions in hard assets - such as gold - which simply do not exist. (Emphasis added)
Ponder that one again: "... (It) now appears that a major part of China's subsequent economic book has been predicated on tens of billions in hard assets - such as gold - which simply do not exist." Or to put it country simple: the whole Chinese "economic miracle" is based on fraud.
Here's what's interesting: Zero Hedge reported this story yesterday, June 29, 2020. And that fact leads me to entertain some very high octane speculation, which my intuition tells me may nonetheless be very possibly true. Certainly the extent of this fraud and its beginning unravelling had to have been known to Mr. Xi's government prior to the Wuhan outbreak. That in turn creates the possibility that the virus hysteria may have been a deliberate plan to (in part) deflect attention from a looming exposure of massive fraud in China's economy, and by extension, all the trade with other countries based on that fraud. Then came recent the Chinese incursion into India, an incursion which resulted in Chinese casualties, though Beijing has as yet not released any figures. That suggests the Chinese paid a heavy price for their misadventure with the Indian Army. At the time of the incursion no one could understand why China would pick such a fight. After all, the Indian military of 2020 is not the Indian military of 1962, the time of the last big Sino-Indian clash. And, India is a nuclear (and probably thermonuclear) power.
But perhaps now we know why China is increasingly lashing out and erratic, even as countries are reconsidering doing business with that country in its one belt one road initiative. China, under the leadership of Mr. Xi and a string of bad policy decisions, has managed to box itself into a corner, and massive bullion fraud will cinch the case: do not do any business with Communist China.
It simply cannot be trusted.
See you on the flip side...