Friday, September 07, 2007

Is China quietly dumping US Treasuries and buying Gold?

A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.

"We won't know if China is behind this until the Treasury releases its TIC data in November, but what it does show is that world central banks are in a hurry to get out of the US. They don't seem to be switching into other currencies, so it is possible they are moving into gold instead. Gold is now gaining momentum across all currencies," Hans Redeker, currency chief at BNP Paribas said.

Any evidence that China was pulling out would risk setting off an unstoppable stampede, which is why such a policy would never be announced. It holds the world's biggest pool of resrves, followed by Japan.

While the greenback has been resilient over recent weeks, most experts believe that America's $850bn current account deficit will eventually cause the dollar to resume its relentless slide.

[Excerpt of an article by Ambrose Evans-Pritchard, The Telegraph]

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