Precious Metals
For the seventh consecutive month, the Chinese government announced that it has added to its gold holdings. The latest published figures are those from May, in which the Chinese government officially added 10 tons of the yellow metal to its reserves. While most analysts speculate that China’s official gold reserves and gold purchases are very likely higher than what is being reported, the official figures are all that we have to go by.
The Chinese government remains keen on diversifying away from the dollar. China continues both to purchase gold and to sell off its holdings of US Treasury securities. Whereas Chinese holdings of Treasury securities were $1.18 trillion in April 2018, they’ve decreased by $70 billion to $1.11 trillion in April 2019. Those sales of Treasury securities and purchases of gold have been going hand in hand, almost as though China is using its sales of US debt to help fund its gold purchases.
As the world’s largest gold producer and world’s largest gold consumer, China will continue to drive world gold markets in the future. There is widespread speculation that China’s gold purchases are intended to back the yuan with gold in a bid to turn the yuan into the world’s reserve currency.
It’s no secret that China is aiming at great power status, and its ability to become a world power will largely be dependent on the strength of its currency. Just as the US dollar became the world’s reserve currency because it was considered “as good as gold,” so too will the yuan likely be dependent on gold for its rise to prominence. Expect the Chinese government to continue its string of gold purchases in the future, and potentially even to ramp them up as the trade spat with the US continues to fester.
While many Americans look apprehensively at China’s bid to make the yuan the world’s reserve currency, there’s no denying that a world financial system based on a gold-backed currency would bring more soundness and stability to the financial system. The US government appears to have ceded that to the Chinese and isn’t about to take it back. That’s all the more reason for US investors to stay ahead of the curve and protect their assets from the coming de-dollarization by investing in gold too.
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