Nervous Chinese To Diversify Into Gold
With Massive $1.95 Trillion Foreign Reserves
Mark O'Byrne
11 February 2009
Of even more significance are the drumbeat of Chinese concerns, the U.S.' largest creditor regarding their massive U.S. Treasury and other debt holdings. Bloomberg reports that influential Yu Yongding, a former adviser to the People's Bank of China, said that China should seek guarantees that its $682 billion holdings of U.S. government debt won't be eroded by "reckless policies". Premier Wen Jiabao said last month his government's strategy for investing would focus on safeguarding the value of China's massive $1.95 trillion foreign reserves.

Yongding said that "China should diversify its reserves away from U.S. Treasuries if the value of China's foreign-exchange reserves is in danger of being inflated away by the U.S. government's pump-priming," he said. He has previously said that China should diversify into the euro, yen, oil and gold. Yongdinghas has warned of possible panic selling of dollar assets leading to a global financial collapse and has said that the potential increases in the value of gold meant China should be hedging its bets by diversifying into gold.

Dow Jones reported in November that China's central bank is considering raising its gold reserve by 4,000 metric tons from 600 tons to diversify risks brought by the country's huge foreign exchange reserves, according to a Chinese newspaper.

China has almost certainly been nibbling in the gold market as they attempt to gradually diversify out of dollars and into gold. Especially in light of the fact that they have less than 1% of their currency reserves in gold unlike most western nations whose gold reserves are very significant percentages of their overall reserves. Despite having the largest foreign currency reserves in the world, they are only 9th in terms of central bank gold reserves and this will change in the coming years as they rebalance and diversify their foreign exchange reserves.


Mark O'Byrne, Executive Director

Gold and Silver Investments Limited

Mark O'Byrne is Executive Director of Gold and Silver Investments Limited (www.goldassets.co.uk). He is regularly quoted and writes in the international financial media and was awarded Ireland's prestigious Money Mate and Investor Magazine Financial Analyst of 2006.