China’s Trillion-Dollar ‘Warning’ To The US: Is China Secretly Loading Up On Gold Now?

China’s waning confidence in US government debt could play right into our hands…

Just on Friday Chinese Premier Wen Jiabao said, “We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I’m a little bit worried.”

China currently owns about one trillion US dollars and it sounds to me like they aren’t happy with the dilution they’re facing from the dramatic run-up in US money supply or Obama’s huge government deficit.

Could this be Jiabao’s subtle ‘warning’ to the US that the Chinese are about to cut back their appetite for financing the massive US debt?

It’s no secret China wants to diversify their foreign exchange reserves. The question is, what do they do with their enormous $1.9 trillion foreign exchange cash horde?

Do they diversify into other paper-based currencies? Or do they look to something tangible? Something with real value. Something like… gold?

China’s official gold holdings are reported to be about 600 tonnes. The US, on the other hand, reports 8,133 tonnes… 13.5-times that amount.
But listen to this…

The US economy is 3.5 times larger than China’s. If China was to increase the amount of gold it owns, so that it has a similar GDP-Gold ratio as the US, China would need to add about 1,800 tonnes of gold to its reserve.

That’s three quarters of the world’s total gold mine production for an entire year.

Such a move would send the demand (and price) of the precious metal soaring. Think it won’t happen? Think about this…

Gold accounts for a paltry 1.1% of China’s foreign exchange reserves. Relative to the US, where gold makes up 79% of foreign exchange reserves, the metal is extremely underweighted in their portfolio. Increasing gold holdings only slightly, say to 3%, would cause a huge surge in the metals demand.

Hou Huimin, vice chairman of the China Gold Association has been calling on his country to do just that saying, “China should have at least several thousand tons of gold in its reserves, five to six times the officially announced 600 tons.”

Listen, the Chinese buying adding to their gold reserves isn’t a shot in the dark. It makes perfect sense and is financially prudent. After all, US interest rates are effectively zero making real returns on government bonds negative.

I wouldn’t be surprised if China is secretly loading up on gold right now, under-the-radar.

A rosy outlook for higher gold prices is why I’ve been telling you to load up on junior gold stocks. They’re one of your best bets to profit from the metal’s rise.

Many gold stocks made nice runs between December and February but have since fallen off a bit due to profit taking. This is our cue to snatch-up some quality companies on the dip.

Which ones? One company worth looking at is US Gold (UXG). It’s run by the Founder and former Chairman of Goldcorp (GG), Rob McEwen.

He’s put together an extremely attractive property portfolio in Nevada, locking-up a huge 135 square mile parcel of land right next to Barrick’s 35 million ounce Cortez project. And right now you can buy shares for less than $2.00.

Bargains like these are unlikely to last, so load-up while you can.

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