China Hedges Bet on Dollar With Gold

China Hedges Trillions of Dollars with Gold Bullion

China has been buying up US Debt with the very same dollars we sent to them by purchasing inexpensive Chinese manufactured goods. Think about what you buy, bikes, electronics, drywall among other things all of these are sold in the US and made in China. Any number of US companies have joint efforts with China to produce everything from aircraft to xylophones. As the Dollar declines so do the Chinese holdings.

As we have discussed before the Chinese are buying up Gold in record amounts. Some experts think this is to hedge against the decline in the Dollar.  Richard Lehmann the President and Founder of Income Securities Investor Inc said in an interview with Steve Forbes,China is probably already on a program to diversify the dollar into gold. I don’t think they want any other fiat currencies or want to minimize that amount. But if they can establish a large gold reserve for themselves, they would be in a position of some day in the future, effectively saying, “We’ve decided to come to buy our last resort for gold. And today’s price that we’re willing to pay for it is $1,500 an ounce.” Dollars, not Renminbi. Which means they’ve, in one stroke, basically taken control of the gold market and tied the dollar to gold so that effectively, if every six months the dollar deteriorates 5%, they can just upgrade the stated price at which they wanted to buy gold at and thereby, upgrade and up-value their gold reserves but also keep the dollar in check.

China will effectively place the US on a de facto gold standard. China is hedging a heavy position in US Debt with an equally strong position in gold. Lehmann went on to say, Well, if they’ve got a balance between(the Dollar & Gold), they’ve got a large gold holding now and a large dollar holding, what they’re losing over here they’re going to pick up on the other side. So for them the balance is there. I don’t think the intent would be to corner the market. The intent is basically to preserve the buying power of the two, three trillion dollars of reserves that they do have.

Finally, when asked his position on acquiring gold Lehmann answered, I’ve been buying gold since 1973. And I don’t have any faith in any of the currencies because all the industrial countries have the same problems we have. And all the currencies are going to be fiat currencies. I think over the long haul, it’s going to be a race to the bottom as to whose currency deteriorates the quickest.

Once again we have some of the smartest guys in the room talking gold acquisition for the long term. As each of the fiat currencies continue to deteriorate gold, silver & rare coins will continue to hold value and gain.  Read the entire interview here: Forbes – Steve Forbes Interview: Richard Lehmann, Fixed Income Guru


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