The latest Bullion Buzz is out. One of the articles features news on China and gold by Christopher Baker. Here is an excerpt:

After watching the US Dollar Index tumble in recent weeks, China appears less willing to remain either a silent bystander or a hapless victim. As the largest foreign creditor to the US, with $868 billion in Treasury bonds, China has cause for concern. The US government has strong incentives to reduce its real burden of debt through inflation and dollar devaluation; either way, the yuan-recorded market value of Treasuries will fall, causing huge capital losses to China's central bank. If the dollar's declining purchasing power is inevitable, the saturation point of China's appetite for US debt could be near. China recently announced new policies with respect to gold; the first was a major liberalization of China's gold market by facilitating greater import and export activity in gold and opening the Shanghai Gold Exchange to additional foreign entities. The second was arguably more significant. In a landmark development, China's central bank threw a lifeline to a credit-strapped global mining industry by explicitly directing banks to extend credit both directly to producers of bullion, and to Chinese entities seeking overseas acquisitions in the sector. The bank said it will “place heavy emphasis on supporting large-scale gold producers in their development and overseas expansion plans.” If China's actions in the energy and commodity markets provide any indication, investors should consider the likelihood that China's upcoming involvement in the precious metals sector will take a variety of forms beyond mere acquisition or investment stakes in miners. Some of China's activity in precious metals may be geared toward securing a steady supply of imported bullion in exchange for up-front development capital. Whatever combination of direct investment stakes, supply agreements, or low-cost development loans result from this official policy directive, the impact will be felt throughout the global markets for gold and silver.

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