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  • From: bob ford <bobford79 AT yahoo.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: [Homestead] China begin buying gold instead of U.S. Treasuries for their reserves
  • Date: Sun, 16 Nov 2008 06:38:05 -0800 (PST)

This is from an english language -hong kong based periodical. This does not
sound good for us, but I would think it was a good idea if I were Chinese.
Instead of relying, as they have been doing, on U.S. treauries for their
reserves (which helped to keep the dollar strong) they are beginning to
diversify their reseves into gold.

-------------------------------------------------------------------------
Gold rush

Benjamin Scent

Friday, November 14, 2008



ADVERTISEMENT



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's fears about the long-term viability of parking most of its reserves
in US government bonds were triggered by Treasury Secretary Henry Paulson's
US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget
deficit balloon to well over US$1 trillion this fiscal year.

The US government will fund the bailout by printing new money or issuing huge
amounts of new debt, either of which will put severe pressure on the value of
the greenback and on government bond yields.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23
billion. China holds gold reserves of just 600 tonnes, worth only US$13.89
billion.

Beijing's reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich
Futures senior vice president Colleen Chow Yin-shan said.

Until now, the United States has had little choice but to issue massive
amounts of debt to fund its deficits, and China has had little choice but to
purchase it, as there are not many markets deep enough to absorb the
mainland's US$30 billion to US$40 billion in monthly capital inflows.

Government officials involved in the management of China's reserves are
beginning to see gold as an attractive place to park some of these funds.
They see it as a real, tangible asset that will not lose its value over time
- in stark contrast to the greenback, which is becoming more disconnected
from economic realities as more bills are printed.

"It's the right time to increase the gold reserves, as the price is about
US$710 to US$720 per ounce," said Wan Guoli, vice secretary general of the
China Gold Association.

The International Monetary Fund has made reducing global payment imbalances
one of its priorities in the aftermath of the financial tsunami.

"I think China probably will expand its strategic reserves into commodities
during this downturn," said a Hong Kong-based strategist.

"China will continue to buy treasuries ... otherwise the system would get
distorted," he said.

"But I think China will diversify its reserves."




http://www.thestandard.com.hk/news_detail.asp?pp_cat=30&art_id=74335&sid=21457716&con_type=1






  • [Homestead] China begin buying gold instead of U.S. Treasuries for their reserves, bob ford, 11/16/2008

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