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Monday, March 5, 2012

China's Gold Strategy

There are a lot of theories being thrown around as to why China is acquiring so much gold. Everything from a failing economy to diversification are part of the media narrative.

I don't think it's primarily related to those or other assumptions, although the there is probably some truth to the diversification element of the story.

At bottom though, it appears China is positioning itself to enhance its currency, and make it much more desirable to the world, as the U.S. dollar continues to weaken because of the horrendous policies of the government and endless printing of U.S. dollars by the Federal Reserve.

With the U.S. dollar inevitably going the way of the British Pound, as far as being the reserve currency of the world, China, no doubt, wants to embrace that role with the renminbi.

This appears to be the reason the country is encouraging its citizens to acquire gold, and why it's importing so much even while it mines gold domestically at record levels.

China has a much longer timeframe than America and the West, and they'll be content to continually acquire gold in preparation for the eventual migration of the world to the renminbi as the reserve currency. It's only a matter of when, not if.

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