Gold as a hedge against inflation: China Dumping Dollars

Gold as a hedge against inflation

Updated March 2023

Indeed the naysayers and doctors of doom were ever so occupied with proclaiming that all of Hell was unleashing itself in China. Alas, many of these penguins lacked comprehension, nay, even awareness, that manifold rationales exist for diminishing China’s reserves.

The reserves once deemed valuable, are now rendered worthless dollars, prompting China to seek diversification by transferring its funds from dollars to gold and other tangible assets. Nay, they do not wish to hold onto frail paper that the Federal Reserve can conjure at its leisure.
Instead of holding onto this currency, China could have employed it to pay down debts, thereby putting the funds to good use. Alas, the U.S. persists in inflating the supply of dollars at an astonishing rate.
Finally, China has directed its resources towards new infrastructure projects, thereby investing the funds wisely. Indeed, the improvement of a nation’s infrastructure creates jobs and yields high returns over the long haul. Behold the United States, whose infrastructure is disintegrating with each passing day, resembling ever more a Third World country, costing the economy billions of dollars.

China’s Staggering Reserves

Notwithstanding the cacophony, our reserves have swelled to the princely sum of $3.21 trillion, which doth exceed by a staggering $3.2 trillion the paltry holdings of the impecunious and hapless United States. That nation’s only proficiency lies in the profligate printing of currency to bolster its despotic government.

Regarding the matter at hand, Mr Hu opined that should the greenback gain momentum in the coming months, in expectation of a Fed-induced rate hike, then the outflow of capital may recur, rendering this annum a most tumultuous one.

However, I must strenuously disagree, sir. Thy assertion that the Federal Reserve shall indeed effect a rise in rates is simply preposterous. Nay, in truth, it is far more likely that rates shall be lowered, as the contemporary world hath embraced the practice of negative rates. Thy statement, therefore, is but the idle prattle of one who hath imbibed some hallucinogenic substance.

Hence, it is imperative that China takes measures to safeguard against the pernicious effects of inflation. In this regard, it would behove the nation to consider diversifying its holdings by investing in Gold as a hedge against inflation. Such a strategic move shall serve as an efficacious hedge against the ravages of inflation, thereby preserving the economic stability of the nation.

Must Read: Negative rates here to stay; Currency wars explode

China 2023 Update

In light of these reports, it seems clear that China is taking steps to reduce its reliance on the US dollar and increase its holdings of gold. While the exact motivations behind this strategy may be complex and multifaceted, it is clear that China sees gold as a valuable hedge against inflation and a key component of its efforts to diversify its reserves. As such, it will be interesting to see how China’s gold-buying evolves in the coming years and its impact on the global gold market.

Several recent reports indicate that China has been taking steps to reduce its exposure to the US dollar and increase its holdings of gold as a hedge against inflation. Here are a few examples of such articles:

“China hoards gold as it seeks to reduce reliance on US dollar” (The Guardian, October 7, 2020) – This article reports that China has been buying gold steadily in recent years and is now the world’s largest producer and consumer of the metal. The author suggests that this trend reflects China’s efforts to reduce its dependence on the US dollar and hedge against inflation. https://www.theguardian.com/business/2020/oct/07/china-hoards-gold-as-it-seeks-to-reduce-reliance-on-us-dollar
“China ramps up gold reserves as trade war drags on” (Financial Times, August 7, 2019) – This article reports that China had added nearly 100 tons of gold to its reserves in the first seven months of 2019, bringing its total holdings to over 1,900 tons. The author suggests that China’s move into gold is part of a broader strategy to reduce its exposure to the US dollar and diversify its reserves.https://www.ft.com/content/5b5f5c18-ba3a-11e9-8a88-aa6628ac896c
“China’s gold-buying spree continues as it seeks to diversify reserves” (CNN Business, July 8, 2021) – This article reports that China had added 10 tons of gold to its reserves in June 2021, bringing its total holdings to 1,948 tons. The author notes that China’s gold-buying has been driven in part by concerns about inflation and the value of the US dollar. https://www.cnn.com/2021/07/08/investing/china-gold-reserves-inflation/index.htm