China Dumps U.S. Treasuries, Buys RECORD Amounts Of Gold Weakening the U.S. Dollar

by James DiGeorgia | 10/31/2023 5:33 PM
China Dumps U.S. Treasuries, Buys RECORD Amounts Of Gold Weakening the U.S. Dollar

The spot price for gold climbed over $2,000 an ounce due to intense accumulation by China, which has been selling assets like real estate—recent data from the U.S. Treasury, $21.2 billion of U.S. assets in August.

While the Fed policy outlook was the biggest driver behind the sell-off in Treasuries, it looks like China’s activity contributed to the move that pushed the yield of 30-year Treasuries towards 5.00%.

The frosty relationship between the U.S. and China since the 2019 COVID pandemic has become increasingly frozen as it steadily ramped up the threat of invading Taiwan and has supplied Russia with weapons, ammunition, and hard goods since its invasion of Ukraine.

Higher Treasury yields may serve as an additional bullish catalyst for gold. Traders are searching for safe-haven assets due to geopolitical tensions. Treasuries are considered among the safest investments in the world, but their price has been falling for months, and some investors are seeing this as a case for investing in gold.

Chinese investors may be among the first to direct their funds to gold markets. There are two main theories about the reasons for China’s rapid selling of U.S. treasuries and bonds.

First, China needs to support the local currency, the yuan. The country’s currency settled near multi-year lows against the U.S. dollar as investors focused on the problems of China’s economy. Selling dollar-denominated assets to provide support to the yuan makes perfect sense. Gold will get limited support if China sells U.S. assets to prop up its local currency.

The second potential reason for China’s activity lies in geopolitics. U.S.–China relations are getting worse day by day. If China tries to shift some money away from the U.S.–controlled financial system, it does not have many options. Gold is one of the few markets with sufficient liquidity to absorb billions of dollars of China’s funds.

Usually, China moves slowly, but given the Chinese/Russian alliance, we will likely see China’s central bank boost its gold reserves sometime soon or learn that it has been buying gold in large amounts in recent months. Any signs showing China decided to increase its gold reserves will be explosively bullish for gold and may send its price toward $3,000 an ounce quickly.

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