There’s even more interesting economic activity coming out of China. As the world’s largest holder of U.S. debt, China revealed that it will be selling off a large portion of its holdings in U.S. Treasuries.
The reason for the sell-off circles back to the devalued yuan. According to Bloomberg, The People’s Bank of China has been offloading dollars and buying yuan to support the exchange rate, a policy that’s contributed to a $315 billion drop in its foreign-exchange reserves over the last 12 months.
With China’s risky-looking economy and devalued currency, the logical move for lots of investors would be to buy up bonds, treasuries, securities, and the like. But with China flooding the treasury market with its sell-off, the outlook for the market is totally different. So far, China’s liquidation hasn’t had an overly detrimental impact on treasuries, but you can already see the ripple effect hitting the commodities market. With the outlook on treasuries uncertain, the demand for gold increased – and so did the price.
Keep in mind though, we’re just speculating. There are lots of factors that cause gold prices to fluctuate, and anything could happen over the next few weeks. However, one thing is for sure – we’ll be keeping an eye on China for further developments.