Warning from China

China launched another attack on US and clearly showing its unhappiness on how spendthrift Uncle Sam is running up its huge debts and debasing the US dollar.

Prime beneficiary – gold. In April, China disclosed that it had stealthily increased its holding of gold to 1,054 metric tones from just 600 tonnes in 2003 and now Mr Li Lianzhong, who heads the economic department of the Party’s policy research office, argues that China’s gold holdings as a share to total foreign exchange reserves should be much higher, in view of higher percentage of share of gold in the foreign exchange reserves of the United States, Italy, Germany and France. Based on numbers from World Gold Council, China’s gold as a percentage of foreign exchange reserves is estimated at 1.8% versus US of 78.3%, Italy of 66.1%, Germany of 69.5% and France of 73% respectively.

If China sells Treasuries, that would weaken the already troubled US dollar, and effectively a double barrel effect on the price of gold – pushing gold prices up as China buys gold and pushing the value of the dollar lower, which in turn will push gold even higher because gold is priced in dollars!

China would need to acquire seven times as much gold as it has now to match the world average of gold as a percentage of foreign reserves.