Chinese goldbugs and the dollar

The price of gold is over $1000 an ounce. Is China involved?


Andrew Leonard
September 8, 2009 7:10PM (UTC)

Two news items that aren't necessarily connected but can be forced together if you squint hard.

The Chinese bond announcement fits squarely within the China-v.s-U.S.-dollar theme. But so too, in a way, does the gold story, if one is to believe the Telegraph's Ambrose Evans-Pritchard, who theorizes in his blog that China has buying gold in bulk every time its price takes a dip, as yet another way to diversify its foreign holdings away from the U.S. dollar. (Found via The Big Picture.)

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But you don't really need a China vs. U.S. conspiracy theory to understand the price of gold -- or China's desire to establish the yuan as a globally relevant currency. All you have to do is look at the dollar, which, reports Bloomberg on Tuesday, "declined to the lowest level this year against the euro as equity markets rose on speculation the global recession is easing, sapping demand for the currency as a haven."

Which presents us with a bit of a paradox. The price of gold often rises when investors are worried about the future. But the the price of gold is currently rising in part because investors are pulling their money out of the dollar, which is falling because prospects for world growth are improving.

Now that we've cleared up everything on that front, let's move on to something simple, like health care reform.

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Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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China How The World Works U.s. Economy

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