In an otherwise quiet article on central banks today, Bloomberg quoted an analyst who says China may use up to a third of their $3 trillion in foreign reserves to purchase gold.
China has been moving away from the dollar, and into alternative stores of wealth for years now.
But $1 trillion in gold? If it plays out, such a move would further threaten the dollar's status as reserve currency. It would provide further buying pressure in gold for years to come, as the dollar crumples into a pitiful heap on the floor.
China’s Gold Reserves
China, which has just 1.6 percent of its reserves in gold, may invest more than $1 trillion in bullion, [Michael Pento of Euro Pacific Capital] said. “China wants to be an international player, and they need to own more gold than they currently have.”
...“China is out to have more gold than America, and Russia is aspiring to the same,” [Robert] McEwen, [the chief executive officer of producer U.S. Gold Corp] said yesterday in an interview in New York. “When you have debt, you don’t have a lot of flexibility. China wants to show its currency has more backing than the U.S.”
...China, with more than $3 trillion in foreign-currency reserves, plans to set up new funds to invest in precious metals, Century Weekly reported this week. Russia purchased 8 tons of gold in the first quarter.
This is a big reason why gold and silver are heading higher. Occasional dips are inevitable, of course. When they happen bears will declare the bubble popped (after a one-week correction).
Then the uptrend will continue, intact. And they'll say, "bubble! bubble bubble bubble bubble, bubble!", again.
And gold bugs will be laughing all the way to the vault.
That's how I see it, anyway. Could be wrong, it's happened before. But, I did say the same thing when gold was $1140 in Why I'm Buying the Gold Dips in December 2009:
"The bottom line is that Bernanke and crew actually want inflation. It's easier than the alternatives: raising taxes or slashing spending. And it will help erase debts. It will also wipe out the savers and reward the borrowers — but that seems to be the path we're on, like it or not.
Besides, do you really think they will allow America's debt to be paid off with dollars worth more rather than less?
Of course not. Devaluing our currency and printing money are part of a strategy. A reckless and morally hazardous one, but still a strategy.
So that's why I still am bullish on precious metals. I'm hoping for a nice pullback in gold and silver. It'll be a great buying opportunity. Once everyone realizes that the Fed's printing presses are just getting warmed up, it'll be off to the races again."
The time will eventually (and sadly) come to sell significant amounts of precious metals, but I just don't see us being close to that point yet. Inning 4 or 5, if this were a ballgame, perhaps? "
Lots more printing ahead, though it's hard to say how much. My view has been that we see at least QE5 (possibly under a different name) and $3,500 gold and $150 silver before things top out.
It all depends on how much inflation the public will take before it declares shenanigans; forcing spending cuts and a tightening of monetary policy.
Then - after a (hopefully brief) adjustment period - America and the world will be on a path to sustainable growth. A time to move from being overweight in metals, and shift into stocks and real estate.
Updated 4/30/2011 for clarity.
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