China Will Push Gold Prices Higher by Investing Its Huge Currency Reserves

The Case for Buying Gold

The gold market has been in the forefront of attention for several years. Awakening from it's twenty year slumber, gold prices have moved up significantly in the 2000's. Still, the price of this shiny metal has yet to exceed it's lofty highs of 1980. The fear of inflation, the commodities boom, scarcity of supply, and international upheaval have all had a positive effect on gold prices. However, the best is yet to come. There is still time to invest in gold to take advantage of the next dynamic price move. 

Gold sits just above $600 an ounce in today's markets. This price is well below it's all time high of $875 and below this year's high of $732. While the for-mentioned reasons for gold's rise will still be applicable, there is a newer and much more powerful force that has the potential to drive the price of bullion to over $2,000 an ounce. That presence is a country that has amassed a surplus of over one trillion dollars in foreign currency reserves. That country is China. China continues to gobble up more and more of many commodities in their unprecedented march to become a global economic leader. 

Now, they stand ready to accumulate another commodity; gold! China has a desperate need to reallocate it's growing mountain of reserves. They will need to diversify them into areas that can keep pace with inflation and provide stability. The U.S. dollar continues to fall in value. China's trade surplus is mostly in dollars. It is a certainty that China will be buying gold in the near future, and lots of it! One of the main reasons will be to back it's own currency, the yuan, with hard assets in the form of physical gold. Despite the many idiosyncrasies people associate with China, they have a solid plan for the future. And that strategy is to replace the dollar with the yuan as the world's currency of choice.