China to Shift Reserves into Gold

goldbars.jpgSure, I’ve heard this rumor several times in the past few years and nothing substantial has come of it. Will anything be different this time around?

One thing that could increase China’s willingness to diversify away from U.S. dollars and debt is the $5 trillion bailout tab that Washington has racked up in the last year. You are reading correct. The number is $5 trillion, not $700 billion. All of these bailouts will be funded by issuing new debt or printing new money and have already pushed the budget deficit to an all-time high of $237.2 billion in October. No matter your view on the markets, this scenario is hyper-inflationary once it plays out.

Thus far, the dollar has rallied in the face of these bailouts, but once the money hits the system there is nowhere for the dollar to go but down and this spells explosive new highs for precious metals and other commodities. I don’t assume to know how soon this will manifest, but it is worthwhile to have a core holding of precious metals and then add to your positions once the move begins. The upside potential is far greater than the downside risk at current prices.

Gold Rush by Benjamin Scent appeared in The Standard on Friday, November 14, 2008. Bloomberg published a similar piece the same day. Got gold?

The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves “in a big way,” the source said.

China has the world’s biggest foreign-exchange reserves at $1.9 trillion, according to data compiled by Bloomberg. It is also the largest overseas holder of Treasuries after Japan. China’s demand for gold jumped 23 percent in 2007, making it the world’s second-largest consumer.

The Asian nation may buy more gold for its reserves on concern the $700 billion U.S. bank bailout will cause declines in the dollar and Treasuries, the Standard newspaper in Hong Kong reported today, citing an unidentified person.

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By | 2017-03-23T14:06:37+00:00 November 14th, 2008|Gold & Silver Commentary|

About the Author:

Jason Hamlin is the founder of Gold Stock Bull and has been investing in precious metals for over 20 years. Jason spent nearly a decade in analytics for the world’s largest market research firm, before finding success investing full time. He launched Gold Stock Bull in 2005 and turned his focus from helping fortune 500 companies to helping individual investors. Jason is a student of Austrian economics and a proponent of cryptocurrencies such at bitcoin.