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China Continues to Ditch US Treasuries & Buy Gold

CHina sells us treasuries buys gold

China sold another $22.7 billion US Treasuries in February, while the People’s Bank of China added another 12.187 tons of gold to its foreign reserves.

China has been getting rid of its US debt holdings since it peaked in November 2013 with $1,316 billion. At the time the country was the largest foreign holder of US debt and had been so until July 2019.

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That month, Japan took over the top spot, as China continued to offload US debt at a faster rate than before. China’s holdings of US debt now stand at $775 billion, keeping the country in second place.

rate of chinese us debt holdings and other foreign countries

That position could be taken away, as Great Britain has been adding US Debt consistently over the past 12 years. Over this same period, we have seen many reports of central banks buying gold.

And often China was one of the pundits mentioned, but it’s also impossible to establish the veracity of the claims. However, The People’s Bank of China started reporting gold purchases again in October 2022.

We have seen that the Chinese central bank has added 300 tons of gold to its reserves since that date. The central bank according to its State Administration of Foreign Affairs (SAFE) now holds 72.74 million ounces (or 2273 tons) of gold.

The Common Cause

The reasons for such behavior from the Chinese government are hardly published. But we can look at two factors that could explain why China is moving away from US debt and into gold. The first is the common currency being pushed by the BRICS nations.

The main champion for this common trade currency is Russia, however, the peculiarity of this common trade currency is that it would be backed by gold. And it would seem that China has been hoarding gold for several years as can be assessed by historical data.

Historical data also shows that Russia has been stockpiling gold for several years. Then there is a second factor, possibly even more important, de-dollarization. Russia has already seen how the US has threatened to confiscate frozen US assets from Rusia and hand them over to Ukraine.

China is certainly a large trading partner for the US, but it still must be questioning if it may ever happen to them. So, it seems to me that China and other BRICS nations are looking to de-dollarize with a common trade currency, which means that it wouldn’t make sense to hold US debt.

 

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Gino Bruno D'Alessio
Gino D’Alessio is a professional Forex trader with 20+ years of experience in the financial markets as a broker-dealer. Having worked in New York and London, Gino is regularly featured on Seeking Alpha. He completed the CAIA program in 2015, which also gave great insight into global macro factors. His main focus is FX majors, indices and commodities.
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