the golden yuan is coming

The Golden Yuan Is Coming
China's Gold-Buying Binge

It's no secret that China's been accumulating gold - a lot of gold.

Hundreds of tons flow into China each year. Though difficult to track precisely, the country's imports appear to be off the charts.

China is the world's largest gold producer, and nearly all its production stays home. Thomson Reuters has indicated that most of the gold liquidated from physically backed ETFs in 2013 flowed east to China. UBS thinks China imported as much as 1,500 tonnes last year alone. That's nearly half of all the gold mined in 2013.

Back in 2009 China announced its official gold holdings stood at 1,653 tons, or about 33.9 million ounces. There've been no updates since, but some think we could get news in 2014.

I estimate China's central bank stash now stands at 4,409 tons. It could be even bigger than that.

Why would China be so hungry for so much gold?

Though it may already seem like a distant memory, last fall the United States was in a heated debate over its debt ceiling and the risk of default by mid-October. The federal government was shut down as the world watched.

China, as the largest foreign holder of U.S. Treasurys, expressed its concerns and frustrations.
Official press agency Xinhua's op-ed writer Liu Chang wrote that the United States' fiscal fiascos warrant "a de-Americanized world."

He went on to call for "effective reform," which should include a "new international reserve currency that is to be created to replace the dominant U.S. dollar..."

No doubt, with the yuan expected to be free-floating next year, the Chinese would like their currency to take on a much more significant role.

So far their actions are pointing in that direction.

Toward a Golden Yuan

Consider China's call for a new international reserve currency, nearly $1 trillion in trade swap deals, and their relentless gold buying.

It's not a stretch to figure when China floats its currency, they'll do so with a partial gold backing.

Zhang Bingnan, market analyst for China Central Television and vice president of the China Gold Association, had intriguing things to say at a financial conference last year. As a result of his studies on gold's place in the modern economy, he concluded it has an essential role in the current monetary system.

Shortly thereafter Tan Ya Ling, president of the China Foreign Exchange Investment Research Institute, spoke at a Beijing gold conference last May. She told delegates that gold is a currency - perhaps even the next world reserve currency - and therefore China has to dominate the world gold market.

Suddenly, a gold-backed yuan would carry intrinsic value, something absent from every other currency today.

The world would quickly want the yuan, pushing up its value and rapidly spreading its ownership and acceptance.

True, a stronger yuan will make Chinese exports more expensive. But China's migrating toward a consumption economy, and a stronger yuan buys them more of the natural resources they desperately need.

There's a number of ways to make money on this development. One way is to exchange dollars for yuan.

But you don't have to open a Forex account or fill out paperwork at the bank to get access to a golden yuan. There are easier ways.

I'm a big believer in the strengthening of gold, and my suggestion is to buy more of it... the bull market is far from over.

http://moneymorning.com/2014/01/21/golden-yuan-coming-heres-play/