Big News: Chinese, Saudis both buying gold with US dollar reserves

Full text of Chinese story

Gold rush

Benjamin Scent

Friday, November 14, 2008

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The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves "in a big way," the source said.

China's fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson's US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.

The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.

Beijing's reserves could easily go up to 3,000 to 4,000 tonnes, Tanrich Futures senior vice president Colleen Chow Yin-shan said.

Until now, the United States has had little choice but to issue massive amounts of debt to fund its deficits, and China has had little choice but to purchase it, as there are not many markets deep enough to absorb the mainland's US$30 billion to US$40 billion in monthly capital inflows.

Government officials involved in the management of China's reserves are beginning to see gold as an attractive place to park some of these funds. They see it as a real, tangible asset that will not lose its value over time - in stark contrast to the greenback, which is becoming more disconnected from economic realities as more bills are printed.

"It's the right time to increase the gold reserves, as the price is about US$710 to US$720 per ounce," said Wan Guoli, vice secretary general of the China Gold Association.

The International Monetary Fund has made reducing global payment imbalances one of its priorities in the aftermath of the financial tsunami.

"I think China probably will expand its strategic reserves into commodities during this downturn," said a Hong Kong-based strategist.

"China will continue to buy treasuries ... otherwise the system would get distorted," he said.

"But I think China will diversify its reserves."

OK, I admit I know very little about 'the markets', so what does this mean?

"I think China probably will expand its strategic reserves into commodities during this downturn," said a Hong Kong-based strategist."

Does it mean China will be using their reserves to buy up food stocks and production capability also?

Gold has more value than dollars, but eventually, it will all come down to food.

Sooner than we can imagine now, I think.

Looks like a cold crazy tropical doom winter as well. First the gold/money delusions shattered, then the weather control shattered.

If the Chinese and Saudis are buying up large amounts of GOLD, why is the COMEX price not going up like crazy. No more law of supply and demand here. Demonstrates without a doubt that the COMEX is rigged.

machobird

I think it maybe because they are buying physical and taking delivery. Correct me if I'm wrong, but that wouldn't be reflected in the "paper" price, would it?

I was wondering what all the major countries with loads of USD would do with it. If they bailed it, they would become target number 1 for US military power. This way they are still dumping USD, but not directly.

Heads up guys and learn. We are seeing the wheels of the machine turn and this will mark the start of next segment of the GD2. History in the making.

Yuan- gold backed
Golden Dinar- gold backed and tied to the Yuan.

No one will need the dollar anymore.

It "seems" to mean, if the story's true, that these govts are losing faith in the US dollar as a safe haven. Gold really is a horrible investment compared to most others, but it's a solid investment in really bad times. If this is a serious move, it might mean these folks aren't sure the US will stay at the top of the heap, that the center of power may soon begin to move to another country/region.

Mostly, it shows uncertainty, and that's bad for any markets.

As for gold prices, govts buy outside the market, their purchases won't show up on Comex or any other trading system. Plus, if they're buying gold because of my guess, they're not interesting in commodity gold, they're looking to buy it as an asset, without hedging their bets, which is why COMEX and others exist, to spread the risk.

the Irony, OMFG this IS 'rich!'

Everything happens for a reason .. .

the Saudis AND the Chinese? PIN, PLEASE...

Agree, this story says to me most importantly that the Chinese and Saudis are getting rid of their dollars. Not so much a gold bug story as a US Dollar scare story.

is there a direct link anywhere to this story?

What they will do if they're smart is buy tonnage from the central banks on the interbank market, then put on about 500,000 comex contracts for delivery and watch the Rothschilds shit bricks while the price goes up by 10x.

China
[link to www.thestandard.com.hk]

Saudi Arabia
[link to news.goldseek.com]

Links pasted from working pages out of my browser, should work.

[link to www.thestandard.com.hk]

tell them how to do it, the people will get paid and the crooks will lose

Having lasted thousands of years, the Chinese know storage of wealth from eroding fiat currency. The Saudis have the same mindset. They are clearly dumping reserves (dollars) for gold.

- Jenn

[link to www.youtube.com]

Lindsey Williams wastight

Oil isat 56 barrell... is has already started.... they are dumping he US Dollar... he US dollar will have no value soon.

Buy Gold and Silver.

Start lisening at 5 Minutes.... you will hear it.

Listen at 2:31 Minutes.... to bring price to $50

[link to www.youtube.com]

Then at 5:40 Minutes.... Destroy the middle eastern price of oil... it will bankrupt the us dollar.....

At 7:00 minuest he talks about them getting rid of all USA currancy and turn to Gold and Silver....

The US Dollare will drop over night.... just sit back and watch....

yep... unfortunately HE TOLD US.... and he is right this is the proof.

more like Chinese & Saudis are buying gold with counterfeit 100s. Might as well, Washington is doing it.

I think the Chinese are pretty smart. Supposedly the senior leaders have read "Currency Wars" which talks about a western banking system conspiracy to dominate the world through currency manipulation among other things.

How they do it is to privately put a substantial portion of their cash hoard into gold without causing a dramatic rise in the price. They do that by buying bank to bank in private sales on the interbank market. Then once they are diversified, which would mean that they already had accumulated the majority of the worlds gold, they cause the western gold price manipulation to fail by standing for delivery on the comex for an amount larger than the comex has to deliver.

At that point, checkmate. Game over. They are the undisputed financial masters of the world as all the totally debased western fiat currencies would hyperinflate.

Maybe they should also buy up the best brains in the world to work for China.The NWO would be Chinese.

They have some pretty good brains there already but their problem is that they have been too trusting of the west.

The last straw was when Paulson went over there this summer to try to get them to buy up a huge swath of CDO traunches before their toxicity was known. Now that it is known they realize that he was trying to swindle them. So they no longer trust the western bankers but meanwhile they have a problem...their vast reserves are in dollars so the last thing they want now is a dollar collapse. Once they diversify those dollar reserves into hard assets, then the USD can collapse away.

The main point is that since they have a vast surplus, and the US is a debtor, they are really the ones with all the power if they know how to apply it. If they play their cards right from here they can make the west dance like a puppet on a string and have whatever they want without ever firing a shot. That's why the article is so significant. They finally apparently realize how they need to play their cards to achieve that dominant status.

and so it begins...

If I was them I would be spending on infrastructure and factories first, get bureaucrats to examine the economy and spot critical production or capabilities that are lacking and build those parts with government money. Work through their system from the ground up and make them more resilient.

Also add storage and stockpiles of everything, but especially oil.

i don't know much about economics so i am wondering if someone can explain why the chinese care if the "system gets distorted"? doesn't this mean they are planning to still back the USD?

That's an easy one. The US trade deficit with China is on the order of 2 billion dollars A DAY. In other words, they ship to us 2 billion a day more goods than we export to them. We export to them....dollars.

So they have to accumulate those tbills at a rate of 2 billion a day just to maintain the status quo. So the article says in simple terms that they are talking about diversifying their already existing reserves which are in excess of one trillion dollars, and that they will continue buying tbills to fund the US trade deficit.