What China Wants More Than Physical Gold
March 11, 2010 3:33 PM
China could have its sights on buying gold mines abroad.
"A few factors limit our ability to increase [our] investment in gold," China's Chief foreign exchange regulator Yi Gang said in a speech this week.
Investors have long speculated China will start buying gold and selling its hoard of U.S. dollars at some point. (China's hoard could be literally trillions of U.S. dollars.) It would be the first step in a "Doomsday" scenario...
China trades in its dollar reserves for gold... The value of the dollar crashes... And U.S. interest rates soar, as China is no longer willing to buy U.S. government Treasury bonds.
Some investors have said China has a perfect way to do it, available right now. The International Monetary Fund (the IMF) has a near-200-ton hoard of gold that it wants to unload.
But if China actually used all its dollar reserves to buy physical gold, it would completely overwhelm the market. It would end up trying to buy about a third of all the gold ever mined in the history of the world. There's no way it could get all that gold without sending the price to outrageous levels.
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