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KDakotaFund (24.76)

China Embraces U.S. Treasuries, Wary About Buying More Gold

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March 09, 2010 – Comments (7)

[I really don't know what to make of this one. - KDF]

China, the world's biggest holder of foreign exchange reserves, renewed its commitment to the U.S. Treasury market on Tuesday but said it would be wary of adding to its gold holdings.

The country's chief currency regulator said China would attract more capital inflows this year, partly reflecting expectations of a stronger yuan, but he left the market none the wiser as to when Beijing might let the currency resume its rise.

The exact composition of China's reserves, the world's largest, is a state secret and the subject of intense scrutiny by global investors aware that, with such large sums at stake, even marginal portfolio shifts have the potential to move markets.

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7 Comments – Post Your Own

#1) On March 09, 2010 at 1:21 PM, cbwang888 (25.84) wrote:

Don't blindly trust what they said. They will continue buying any natural resources and mines oversea if any country is dumb enough to sell them cheap.

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#2) On March 09, 2010 at 1:26 PM, cdulan (89.22) wrote:

With the USD up so much this year, any Treasury purchases have had a great return.  Maybe not in USD terms, but versus any other currency, the Chinese have retained buying power when buying treasuries.

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#3) On March 09, 2010 at 1:31 PM, oldfashionedway (39.12) wrote:

In some cultures it is standard policy to disparage the price and quality of an item for which you are bartering.  After the 'haggling' is over, the buyer proceeds to tell his friends about the great deal he got on a priceless item.

 Just a thought.

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#4) On March 09, 2010 at 1:52 PM, KDakotaFund (24.76) wrote:

cbwang888, oldfashionedway

I would tend to agree, but to me it just seems like such obvious BS that I'm surprised they'd even say it in the first place, like when you're in high school hitting on the hot blonde with the big boobs and telling your friends, "Oh, I don't like her or anything."

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#5) On March 09, 2010 at 2:49 PM, FreeMortal (29.97) wrote:

Yeah, I smell BS on the gold thing too.

Having huge currency reserves is great for three purposes: influencing policy in other countries, foreign investment, and importing goods.  China's massive clout already has influence in US policy and markets as well many other countries.  Recently, China has opened the valve on foreign investment; in some cases they are literally buying the US. 

It's pretty common knowledge that Yuan is undervalued.  The hard part is knowing just when it will appreciate.  Since it appears that the yuan is well controlled by the Chinese command economy, the yuan will only appreciate at the precise time that the Chinese government wishes it --which is anybody's guess.

I don't think China necessarily has to wait for the Yuan to appreciate order to buy gold.  The foreign reserves are perfect for the task at this point as they will lose value as the yuan goes up.

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#6) On March 09, 2010 at 3:41 PM, cbwang888 (25.84) wrote:

Yuan undervalued? Didn't China print as much to keep the Yuan/USD  ratio fixed? The real estate market in China is overheated now while US is trying to put a stop on its own...

 

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#7) On March 09, 2010 at 4:58 PM, ralphmachio (24.64) wrote:

If the same thing is repeated enough, people on the whole will eventually believe it. There is plenty of downside to gold if they continue this campaign, and it will be to scoop up a bunch on the cheap, as Old fashioned Way suggests. I was actually wondering how China was planning on lowering the price of gold before they buy much more, which seems in their best interest. Think Chinese handcuffs. Chinese martial arts also specialize in sweeping the opponent after you have made him lean in the wrong direction, making the drop more severe. One thing is certain. China is only playing nice for as long as it is strategically wise. No point in being open about ones intentions, if they have been to defeat an opponent at his own game for 4 decades now. The US knows this, but if they were open about this sketchy relationship, it would negatively affect investor sentiment. Much better to have investors believe we need each other, and that things will improve slowly, rather than worry about when the rug gets pulled out from under them.

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