In this Washington Post article it quotes a leading Chinese economic management official with saying
“We suggested that China’s gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years,”

A good way to get perspective on what this means is to look at the following graph showing current gold holdings and compare it to their stated goals. While the chart focuses on India it shows China as ranked #5 with approx 1000 tons. If they achieve their stated goal of 6000 in the next 3-5 years they will have surpassed the US by a significant 30+ percent (assuming the US reserves don’t diminish).

Now there is nothing inherently “wrong” with China accumulating such wealth and surpassing the US. If our egos get bruised too much from such an event our media can easily spin the scale by showing charts of how much gold per-capita each country owns and we can feel good about ourselves once again.

I compare these two pieces to show the scope

and scale

of China’s ambitions. They are huge, really, when compared to their current status. It is almost their equivalent of “putting a man on the moon”!

Now, let’s do some math to see how they can achieve this monumental feat financially. The Washinton Post article says they hold a commonly used figure of “$2 trillion foreign exchange reserves held in dollar-linked investments“. If we round off the current gold price to $1200 per ounce (for simplicity sake) then one ton would cost 2000 (lbs) X 16 (oz per lb) X $1200 (per oz) or $38,400,000 (thirty eight million four hundred thousand dollars per ton).

How many tons of gold could the Chines buy (assuming their purchase didn’t inflate the current gold prices) with their 2 trillion dollars worth of reserve holdings? To find that we need to divide 2 trillion ( two followed by 12 zeroes) by the cost per ton (38.4 million). Doing that we get …

52,083 TONS is what China could afford to buy with their current holdings of US reserves. Yes, that is right 52 THOUSAND tons they could afford to buy at current prices. And how much did they say they wanted to buy in the next 3-5 years? A measly 5,000 tons. Folks that represents a mere 10% of their current holdings of US debt. It looks to me like they will be able to pull it off, what do you think?

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