Is China Hoarding Gold Bullion in an Effort to De-Stabilize America?

China is the world's largest gold producer and, of late, China has been accumulating more gold bullion than any other country including America. There are many possible reasons as to why China is hoarding gold ranging from concerns about inflation, an effort to concentrate its portfolio other reasons best known to China's ruling party. One thing is for certain. China, of late, has increased its rate of accumulating gold.

Factors indicating increased appetite for gold:

1. The country has been importing precious metals at an amazing rate; the amount it imported in 2010 is five times the amount imported in 2009!

2. Compared to America, which consumed 233.3 tons, China consumed a whopping 579.5 tons of gold in 2010.

3. Chinese gold demand increased to about 25% of the total produced globally.

4. The Chinese demand for gold bullion increased from a total of about 15 tons of physical metal in the whole of 2010 to about 7 tons of physical metal in January 2011 alone.

5. Since mid-2007 the Chinese have bought approximately half as much as all the investors in the West collectively.

6. China replaced South Africa as the world's largest producer in 2007, yet continually increases its gold imports every year.

Reasons why China could be hoarding gold:

While China might not admit it publicly, there are many signs that it is hoarding gold in an effort to replace the petrodollar with a €petrogold€ system. The international community has since the late 20th century used the U.S dollar to trade oil all over the world.

This has in turn caused a huge demand for both U.S dollars and contributed to increasing the size of the national debt in America. If the rest of the world starts rejecting the U.S dollar and instead adopts gold as the international trade currency, the demand for U.S dollars would plummet. Indications are that the rest of the world is now moving towards insisting on payments in gold bullion as opposed to American dollars. Privately, small investors are also getting into the scene as they invest in gold as well. There is a distinct possibility that China is accumulating huge amounts of gold bullion because it intends to make a move internationally to have the American dollar replaced as the currency of choice for settling international debts and replaced by bullion. In mid-October 2013 China publicly stated that intention to the international community only hours after the latest "debt ceiling" crisis was averted in the United States at the last minute.

Some experts believe that China's plans include replacing the U.S as the world's pre-eminent economic superpower. It would achieve that by first backing the Yuan with gold, which would signal a return to the Gold Standard that existed in the world until 1971 when President Nixon decided to sever the relationship between the two currencies that existed up to that point. China in effect would become the world's reserve currency if their vision is realized. Already, the Chinese government accounts for more world trade on the international scene than the U.S does. So, if China was to announce that it was backing Its Yuan with gold and further that it would henceforth stop using U.S dollar in international trade, there would be a huge explosive financial shift so disastrous that it would collapse the dollar completely. China already has many advantages in deciding the destiny of the U.S dollar; China has the second largest economy on earth and hence, apart from the U.S, China uses the dollar in the international trade more than any other country. The country has been doing so mostly because there has not been a better alternative but a gold-backed Yuan would give the Chinese the stability in international markets they so seek.

Realization of the role and status of the gold reserves is yet another reason. Gold is very stable and scarce. For this reason it forms the best exchange value of labor reserves scales and an important means of wealth. Gold is an important international reserve asset, reduces inflation, and enhances the national credit and exchange rate stability. Remarkably, the U.S dollar and British pounds were able to rise from a single country currency thanks to huge gold reserves in their respective countries.
Efforts to increase domestic resource integration is another reason.

Increasing gold reserves is the central pillar of the county's first development strategy. Even in an average country gold ownership takes about ten percent of the foreign exchange reserves to ensure financial stability in the country's economy. For developed countries such as France, Italy and U.S, on the other hand, gold reserves account for up to 70 percent! China, therefore, is hoarding gold for this purpose - to improve its reserves to the level of developed countries.

China is also trying to break away from the tradition of keeping long term U.S treasuries. They have in fact, been getting rid of longer-term Treasuries and replacing them with short-term Treasuries. China is slowly re-arranging their international holdings of gold and Treasury Bonds by diversifying and focusing instead on hard assets. If expectations of a coming international economic catastrophe are accurate China's recent actions will position itself well to reduce the impacts of a dollar-driven recession whereas countries who delay to act in a similar manner would be exposed in the worst way and could not be expected to weather such a storm.

While their motives are not very clear, one thing is certain - their actions are indicating that China is accumulating gold bullion at an alarming rate.

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