China Should Sell US Treasuries When the Market Is Strong (Like Now) and Diversify Its Reserves

If the Treasury market is robust, as it is now, China might be able to sell its Treasuries without disrupting the market, but it would also then have to sell dollars to diversify into other assets in constructing a portfolio. This might show up in the value of the dollar if not in the bonds.

I wonder how much of that BIS / IMF gold is being diverted to China in private sales in order to allow confidence to remain high in the fiat, and to not disrupt the public markets with large price fluctuations. The US banking system has a significant risk exposure to the gold and silver markets through a few of its banks who are leverage short to the hilt.

This same story prompted Max Keiser to write the following in Game Theory and Gold: Countdown to Meltup

"Soon enough, a G20 nation will announce a full or partial gold backed currency forcing every other country to either reply with their own gold backed currency – or equivalence – or risk 100% capital flight."

Reuters
China should cut U.S. Treasury holdings: economist
by Langi Chiang and Alan Wheatley
BEIJING Sun Jul 18, 2010 9:24pm EDT

(Reuters) - China should cut its holdings of U.S. Treasury securities when market demand is strong, a prominent economist said in remarks published on Monday.

Beijing reduced its Treasury holdings in May by $32.5 billion to $867.7 billion, but it actually bought a net $3 billion in long-term Treasuries and remained the largest single holder of U.S. government debt, the Treasury reported on Friday.

Yu Yongding, a former academic adviser to the central bank and now a professor with the Chinese Academy of Social Sciences, said Beijing should invest in assets denominated in other currencies as well as other financial instruments and real goods.

"Although assets in other currencies and forms are not an ideal replacement for U.S. Treasury bonds, diversification should be a basic principle," Yu wrote in the China Securities Journal.

"When demand for U.S. Treasury securities is strong, it's a rare opportunity for us to gradually pull back. That way, it will not have a big impact on prices and China will not suffer too much," he said.

Zhang Monan, a researcher with the State Information Center, a think tank under the powerful National Development and Reform Commission, told the paper that China should invest more of its $2.5 trillion of foreign exchange reserves, the world's largest stockpile, in hard assets such as gold.

Maestro Redux: Bringing in the Sheep

This cartoon is from a few years ago. I remember running it on my old site at the time.

I think it is not only relevant today, but will likely strike a stronger chord with more people since things are progressing in this direction.

How Goldman and J P Morgan May Intend to Rape the Mining Industry (Again) and Take It Over 'On the Cheap' As Bullion Rallies

Those who have followed the mining industry over the years know how painful it was for those who had sold their bullion forward, on the advice of bullion banks like Goldman and J P Morgan, to unwind those hedges. The cost was company insolvency and a sale on the cheap for the smaller players, and billions in writeoffs for the larger, like Barrick Gold.

Perhaps a round of precision naked short selling and bullion price suppression will soften them up the cash strapped miners, and curtail their access to the alternative sources of capital and credit enough to prompt some soft-headed and desperate CEO's make their (sometimes self-serving) deal with the devil again.

You will forgive me if I wonder if Goldman would be taking the other side of this trade with their customers, waiting gleefully for the day when their 'forecast' proved to be wrong, and the miners found themselves unwittingly in their greedy little hands, God's work having been done once again.

And if they are caught, well, the going price of fraud on a massive and obvious scale seems to be about $550 million, so that will have to be factored into the business plan. Short sales on the collateral damage should cover that cost of doing business nicely, and keep the moral hazard and faux regulators happy.

And as for investors, they may wish to consider putting any miner who buys into this scheme on their 'do not buy' list. Although it should be noted that Barrick had a few good years, while its peers suffered, for its betrayal of its industry and ultimately its shareholders, when the devil had his due. In the famous New Orleans lawsuit they claimed that they had been working with JPM at the behest of the Federal Reserve.

Are the BIS, the IMF, the ECB, and the Fed starting to scrape the bottom of their bullion barrel, requiring fresh sources of physical to sell into the market, and feeling the twinges of anxiety that disclosure is near, the jig is up? Hope so. Could not happen to a more deserving group. And I hope to live to see the day.

Mineweb
Goldman predicts falling gold price beyond 2011, recommends gold hedging
Lawrence Williams
Thursday, 15 Jul 2010

Goldman Sachs has raised its medium term gold price forecast to $1,355, but reckons prices will fall from 2011 and recommends producers sell gold forward.

LONDON - Plus ça change. Goldman Sachs is suggesting that mining companies sell gold forward again. The logic behind this is that although the bank reckons the gold price will increase to $1,355 an ounce over the next 12 months - a tiny increase from its earlier prediction of $1,335 - beyond that it is looking for prices to stabilise and fall as the U.S. Fed tightens monetary policy and the recession is seen to be ending.

Of course the big gold banks, of which Goldman is probably the most successful, can do very well out of its clients hedging their gold forward whatever the fortunes of its clients in so doing. It was notably the bank which reputedly advised Ashanti Goldfields to sell its gold forward at gold's low point back at the end of the 1990s - a policy which brought the gold miner to its knees leading to its takeover by AngloGold - another Goldman client. Indeed commentators have suggested that Goldman made profits on every angle of the Ashanti hedging debacle, and on the sale of one of its clients to another.

Goldman would probably counter that its primary responsibility was to its shareholders - perhaps even more so than its clients - and that the sudden turn-around in the gold price which caused Ashanti's effective bankruptcy, was completely unforeseen, but the whole episode left a bitter taste that lingers to this day, particularly in Ghana where Ashanti was seen as the country's major gold player on the world scene.

However, the fact that Goldman is still looking for an increase in the gold price, even if only over the next 12 months, is positive for gold. The bank actually forecast a six-month gold price (effectively a year-end figure) gold price of $1,290 rising to the $1,355 figure over the following six months. With predictions being regularly updated (the latest figure is an update from Goldman's previous one of only three weeks earlier) the position may again change depending on how quickly the global economy is seen as recovering.

Goldman also delivered forecasts for base metals and silver, all of which ranged higher than previous ones apart from zinc where the bank was looking or an 18% fall.