| – Gold prices rise to $1,326/oz on concerns China may slow U.S. Treasury buying – Equities fell sharply on the report as did Treasurys and the U.S. dollar – Chinese officials think U.S. debt is becoming less attractive compared to other assets – Trade tensions could provide a reason to slow down or halt U.S. debt purchases – U.S. dollar vulnerable as China remains biggest buyer of U.S. sovereign debt – Currency wars to return as China rejects U.S. hegemony in Asia |
Gold Price in US Dollar, 10-11 January 2018(see more posts on Gold prices, ) Gold prices in US dollar (GoldCore) - Click to enlarge |
| Gold prices rose yesterday, reaching their highest level in four months as the dollar fell just after a report that Chinese officials had encouraged slowing or halting purchases of U.S. Treasury securities.
The greenback fell against all major currencies and especially gold after the report. Spot gold prices rose 1.2% from session lows of $1,310/oz to session highs of $1,326.56/oz prior to falling back and closing in New York at $1,317.40/oz where it remains in late morning trading in London. U.S. Treasury yields jumped to 10-month highs following a Bloomberg report that Chinese officials have recommended China gradually sell or halt their buying of U.S. debt. |
Silk Road Gold Demand, 1995 - 2017 - Click to enlarge |
| China is likely to stop buying U.S. Treasurys, the question is when, and when it happens it will have major repercussions for U.S. monetary policy. It will greatly hamper the Federal Reserve in reducing its bloated balance sheet and may force the Fed to begin QE again which would be very positive for gold.
Chinese relations with the U.S. remain frayed and Trump’s aggressive economic and military policies are likely to see a monetary response from China. As China-U.S. relations deteriorate, so too will currency wars return as China rejects U.S. hegemony in Asia. The dollar and financial and monetary dominance of the U.S. is increasingly at risk. And as monetary and economic tensions between the struggling superpower and the emerging superpower deepen – a gold-backed yuan becomes more likely. If China were to partially back its yuan with gold it would require a gold price of $64,000 per ounce, 50 times gold bullion’s price today, according to research from respected Bloomberg Intelligence (see below). |
US Treasury Securities Held by China, 2008 - 2017 Source: U.S Treasury Department - Click to enlarge |
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