Thursday, September 15, 2011

He Who Has the Gold

[China] is the largest holder of US treasuries, or government debt, with $1.166tn as of June 30, 2011, according to the San Francisco Chronicle. Thus, major devaluation of the dollar would hurt China, as it would be left holding wads of worthless paper.


"China is locked into a position where they cannot sell a big portion of their dollar reserves overnight without hurting themselves," Aizenman said. "It is too late for now to diversify rapidly the stock they have already accumulated."

The answer: Buy gold. Everyone seems to be doing it. The value of the glistening commodity, useless for most practical purposes, increased almost 400 per cent, from less than $500 an ounce in 2005 to about $1,900 in September.


China is shifting some of its massive foreign holdings into gold and away from the US dollar, undermining the dollar's role as the world's reserve currency, accoding to a recently released WikiLeaks cable.

"They [the US and Europe] intend to weaken gold's function as an international reserve currency. They don’t want to see other countries turning to gold reserves instead of the US dollar or Euro," stated the 2009 cable, quoting Chinese Radio International. "China's increased gold reserves will thus act as a model and lead other countries towards reserving more gold."


....but hey, do what you will anyway.

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