it appears that china will finally be putting its overvalued us dollars to good use. first comes a stimulus package worth nearly $600 billion. whether they sell some of the treasuries or simply refrain from buying more, this will reduce the demand for dollars.

now there is a report that china could be diversifying into gold, another practical response to a gold price being held down in the lower $700's.

this article is called "gold rush" by benjamin scent.

The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.

http://www.thestandard.com.hk/news_d...

Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves "in a big way," the source said.

China's fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson's US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.

The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.