Why is China Hoarding Gold?

[huobi_network]

Basically China hoardes gold because it's a no lose situation for them.  Being one of the largest holders of USD debt as well as one of the largest stockpilers of gold put's them in a unique position to ultimately make a play on the USD as world reserve currency.  Just imagine Russian based oil sold for some Chinese denominated coin backed by actual gold?!  Stormy sea's on the horizon for our little Island of consumption I'm thinking.

China only missing 2 more elements replace USD.

1) A military capable of defending itself.
2) Oil reserve.

Once they have both, US will be at its mercy for economy survival.

1. The US military couldn't even conquer the Taliban, China has nuclear weapons.
2. China will end its oil dependency before the United States. (Compare their energy policies.)

[Yakamoto]

Basically China hoardes gold because it's a no lose situation for them.  Being one of the largest holders of USD debt as well as one of the largest stockpilers of gold put's them in a unique position to ultimately make a play on the USD as world reserve currency.  Just imagine Russian based oil sold for some Chinese denominated coin backed by actual gold?!  Stormy sea's on the horizon for our little Island of consumption I'm thinking.

China only missing 2 more elements replace USD.

1) A military capable of defending itself.
2) Oil reserve.

Once they have both, US will be at its mercy for economy survival.

1. The US military couldn't even conquer the Taliban, China has nuclear weapons.
2. China will end its oil dependency before the United States. (Compare their energy policies.)

This.

The US facing off against China would be a long campaign that would end up with china winning.

Let's use numbers.

If China's infantry are trained 60% as well as American forces, that's still more than double the total training that the USA has. 4,000,000*60% as opposed to 1,000,000*100%

Plus China has lots of hardware, but so does the US, so it comes down to quantity as opposed to quality. An M1 Abrams can only take so many shells before one penetrates it, especially if there are 3 tanks firing at it.

This may be a bad example, but it probably illustrates it the best.

So China could very well beat the US, but it would be a long war.

[Tbone123]

All the same China could opt for a compromise position, something like Chinese Bitcoin; a digital exchange currency backed by gold.

What is to stop them from abandoning the gold standard at a later point in time, like the US did? 

They have already abandoned the gold standard when US got off gold standard all money was truly Fiat, free floating money with no intrinsic value other than the value of the paper it is composed of. Maybe China wants to become the world reserve currency knocking the US off this position we have enjoyed for so many years. I guess they want gold so they can at least be part of a group of currencies that will compose the backing of a world currency. No gold no vote.

[tee-rex]

All the same China could opt for a compromise position, something like Chinese Bitcoin; a digital exchange currency backed by gold.

What is to stop them from abandoning the gold standard at a later point in time, like the US did? 

They have already abandoned the gold standard when US got off gold standard all money was truly Fiat, free floating money with no intrinsic value other than the value of the paper it is composed of. Maybe China wants to become the world reserve currency knocking the US off this position we have enjoyed for so many years. I guess they want gold so they can at least be part of a group of currencies that will compose the backing of a world currency. No gold no vote.

I don't think they are going to establish a new world reserve currency. They are always quite happy with being only the second best. My guess is that they hoard gold just in case dollar should fall. This way their gold reserves will serve a hedge against such a possibility. No matter what currency becomes a new dollar (or even if there is none), they would always have something to exchange for it, or just directly use their gold as money.

[polynesia]

I don't think they are going to establish a new world reserve currency. They are always quite happy with being only the second best. My guess is that they hoard gold just in case dollar should fall. This way their gold reserves will serve a hedge against such a possibility. No matter what currency becomes a new dollar (or even if there is none), they would always have something to exchange for it, or just directly use their gold as money.

They are happy being second best for now. Once they become a developed nation, you never know.

Thinking of the Chinese establishing a new reserve currency at this point of time is far fetched. If you have RMB, you can't even purchase capital assets in China now!!

[byronbb]

They own insane amounts of US Treasury Bills. The gold is an insurance policy against a US default.

[polynesia]

They own insane amounts of US Treasury Bills. The gold is an insurance policy against a US default.

Given the amount of T-bills that they hold, no amount of gold would be insurance.

[verlosser89]

because they like the color of gold (Gold)

LOL. true gold?
Chinese companies may have accumulated up to 1,000 tonnes of gold for use as collateral in financing deals rather than to meet consumer demand in recent years. Most of this has been built up since 2011, when gold has been increasingly used as the basis for a variety of financial operations in China. 

[Happy_idiot]

In my opinion they really want to have future world reserve currency...

[spazzdla]

You can either accept the fact it might be true that the BRICs plans to back the New Development Bank with gold or call it a crazy theory. Every single country in the BRICs has commented many times about the abuses of the IMF and America many times..  They have all called for a new reserve currency..  They launch in 2016.. 

[spazzdla]

Basically China hoardes gold because it's a no lose situation for them.  Being one of the largest holders of USD debt as well as one of the largest stockpilers of gold put's them in a unique position to ultimately make a play on the USD as world reserve currency.  Just imagine Russian based oil sold for some Chinese denominated coin backed by actual gold?!  Stormy sea's on the horizon for our little Island of consumption I'm thinking.

China only missing 2 more elements replace USD.

1) A military capable of defending itself.
2) Oil reserve.

Once they have both, US will be at its mercy for economy survival.

The BRICs are missing non of this.. you have been warned, 2016 will be an interesting year.

[galbros]

China's foreign currency reserves are massive, 3.3 trillion total and about 2.2 trillion of that in USD denominated assets.  Despite their recent build up in their gold holdings (to 1000 to 3000 tons, nobody knows the exact number) they hold a lot more "paper" US dollars for every gold dollar, e.g. gold is only about 2% of their foreign currency reserves.

If China ever moved in a big way from paper USD to gold, it would have a massive effect on the market.

[Yakamoto]

You know, what does changing to gold mean?

Nothing, in my opinion, unless VERY strict regulations are put in place.

Say I have $10 of gold, and I print 10 paper bills that can be exchanged for $1 each.

What is to stop me from printing more of them?

It's rarely explicitly stated how much a bill can be exchanged for, so I can print 20 bills, then 30, then 1,000,000...

Inflation and value don't mean a lot when backed by gold, all it means is that you can take your cash, exchange it for whatever amount of gold it's worth, since the value will keep dropping...

Gold-backed doesn't really help...

[blumangroup]

China's foreign currency reserves are massive, 3.3 trillion total and about 2.2 trillion of that in USD denominated assets.  Despite their recent build up in their gold holdings (to 1000 to 3000 tons, nobody knows the exact number) they hold a lot more "paper" US dollars for every gold dollar, e.g. gold is only about 2% of their foreign currency reserves.

If China ever moved in a big way from paper USD to gold, it would have a massive effect on the market.

This is a very good point. Although the additional amount of gold that China is buying is huge for most people, in percentage terms of it's total asset holdings it is actually very small.

[polynesia]

China's foreign currency reserves are massive, 3.3 trillion total and about 2.2 trillion of that in USD denominated assets.  Despite their recent build up in their gold holdings (to 1000 to 3000 tons, nobody knows the exact number) they hold a lot more "paper" US dollars for every gold dollar, e.g. gold is only about 2% of their foreign currency reserves.

If China ever moved in a big way from paper USD to gold, it would have a massive effect on the market.

Even if China stops accumulating further USD, it would make a huge difference.