Top China Analyst Recommends Divesting from Dollars Into Gold, Other Assets

Tuesday, July 20, 2010

Still holding only minuscule gold reserves in relation to their FX portfolio China only a two weeks ago had stated that gold will not be a major focus of currency reserves
Keep in mind that the government buys practically all domestic production while the country has become the biggest gold producer in the world, digging out 310 metric tons in 2009. 
This may all be part of a bigger strategy as China stated its gold hoard at 620 tons beforer suddenly announcing a jump to 1,054 tons in 2009. As this comprises only a small fraction of its total FX holdings exceeding $2.5 Trillion they will no be so thoughtless as to give any indication on their further gold plans.
Thoughts there are, certainly, when reading this Reuters report, where a senior Chinese analyst names specifically gold as an asset the Eastern empire should divest into.
From Reuters:
China should cut its holdings of U.S. Treasury securities when market demand is strong, a prominent economist said in remarks published on Monday.
Beijing reduced its Treasury holdings in May by $32.5 billion to $867.7 billion, but it actually bought a net $3 billion in long-term Treasuries and remained the largest single holder of U.S. government debt, the Treasury reported on Friday.
Yu Yongding, a former academic adviser to the central bank and now a professor with the Chinese Academy of Social Sciences, said Beijing should invest in assets denominated in other currencies as well as other financial instruments and real goods.
"Although assets in other currencies and forms are not an ideal replacement for U.S. Treasury bonds, diversification should be a basic principle," Yu wrote in the China Securities Journal.
"When demand for U.S. Treasury securities is strong, it's a rare opportunity for us to gradually pull back. That way, it will not have a big impact on prices and China will not suffer too much," he said.
Zhang Monan, a researcher with the State Information Center, a think tank under the powerful National Development and Reform Commission, told the paper that China should invest more of its $2.5 trillion of foreign exchange reserves, the world's largest stockpile, in hard assets such as gold.
It appears Chinese experts apply a much more rational approach to the world's financial woes. Their $2.5 Trillion FX paper stash can quickly turn in a noose around the government's neck when the USA will begin to hyper inflate as there is no other way to finance the runaway budget deficits and the wars it loses anyway.
Western governments should remember: You cannot print your way to the "Endsieg" (final victory) and creditors will end any such attempt by abandoning Western credit markets.

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