Oxstones Investment Club™Between January 2006 and July 2011, China had a cumulative trade surplus with the US of $1.421 trillion, equal to an average monthly surplus of $21.21 billion. During this period, China invested $1.001 trillion or 70.44% of their newly obtained US Dollars into US Treasuries – causing China’s total US Treasury holdings to increase by 318.8% to $1.315 trillion.
Between August 2011 and January 2015, China had a cumulative trade surplus with the US of $1.167 trillion, equal to an average monthly surplus of $27.79 billion. Shockingly, despite China’s average monthly trade surplus with the US growing by 31% over the prior period, China during this period reduced its US Treasury holdings by $76 billion – causing its total US Treasury holdings to decline by 5.8% to $1.239 trillion. China had to find a new place to invest $1.243 trillion – a larger sum of US Dollars than it currently has left in US Treasuries.
After China’s US Treasury holdings peaked in July 2011 at $1.315 trillion, China in August 2011 sold a record $36.4 billion of US Treasuries in a single month. China continued dumping US Treasuries for a record five consecutive months. In December 2011, China crushed its own record set in August 2011, by selling $102.7 billion of US Treasuries in a single month. All together, China between August 2011 and December 2011 sold $163 billion of US Treasuries, its most ever in a five month period.
In August 2011 at the same time China began dumping US Treasuries, gold saw its largest monthly gain in over three decades! Gold in August 2011 averaged a price of $1,756 per oz, up $183 per oz from its average July 2011 price of $1,573 per oz. Between August 2011 and December 2011 as China dumped a record $163 billion of US Treasuries, gold averaged a record high price of $1,720 per oz, up $219 per oz from its average price during the prior five month period of $1,501 per oz.
As of next month it will be exactly six years since China last reported its official gold reserves in April 2009, when it disclosed a gold reserve of 1,054 metric tons. NIA believes there is a 90% chance that China will announce its latest gold reserves this year – and a 50% chance of it being within the next 60 days. When China reported a gold reserve of 1,054 metric tons in April 2009, it was exactly six years since they announced their previous gold reserve update in April 2003. In April 2003, China reported a gold reserve of 600 metric tons. They accumulated 454 metric tons over the following six years to increase their gold reserve by 75.67%.
NIA believes that China has been aggressively accumulating a massive reserve of gold, with a goal of positioning the RMB to replace the USD as the world’s reserve currency. Because China has such large US Dollar reserves, it must shift its USD holdings into gold in secret. Once the public becomes aware of just how large China’s gold reserves have become, we will see a worldwide run on the dollar and rush into gold.
China’s close ally in their financial war against the US is Russia, which has also been aggressively dumping US Treasuries to buy gold. Because Russia has been dumping dollars to buy gold on a far smaller scale than China, it is able to be fully transparent about it.
In April 2009, when China publicly reported a gold reserve of 1,054 metric tons, Russia at the time had a gold reserve of 550 metric tons. Although China’s gold reserve was nearly twice as large as Russia’s gold reserve – Russia’s gold reserve was significantly larger as a percentage of its foreign exchange (FOREX) reserves. China at the time had FOREX reserves of $2.135 trillion and its 1,054 metric tons of gold were worth only 1.48% of its FOREX reserves. Russia at the time had FOREX reserves of $395.89 billion and its 550 metric tons of gold were worth 4.17% of its FOREX reserves.
Over the last six years, Russia has increased its gold reserves by 119.5% to 1,207 metric tons. Meanwhile, Russia’s FOREX reserves have declined 14.27% to $339.37 billion. Russia’s gold reserve is now worth 13.79% of its FOREX reserve.
China over the last six years has increased its FOREX reserves by 80.75% to $3.859 trillion. Even if China simultaneously quadrupled its gold reserves to 4,216 metric tons, its current gold reserve value would only be 4.24% of its FOREX reserves, approximately the same percentage that Russia already achieved six years ago.
For China to reach gold reserves worth a healthy 10% of its FOREX reserves to strongly position the RMB to replace the USD as the world’s new reserve currency, China would need to increase its gold reserves by 844.3% to 9,953 metric tons. Based on gold’s average price over the last six years of $1,365 per oz, this would have cost China an estimated $390.54 billion. A cost of $390.54 billion is equal to just 31.4% of the $1.243 trillion in US Dollars that China needed to invest outside of US Treasuries. If China has increased its gold reserves to 9,953 metric tons, it would now have the world’s largest gold reserve, surpassing America’s purported gold reserve of 8,133.5 metric tons!
Tags: China, FOREX reserves, gold reserves, new reserve currency, RMB, trade surplus, US Treasuries, US Treasury holdings, USD