Everyone is kicking themselves for not buying more gold sooner. People, funds and countries are waiting for a multi-day (or better yet, a multi-week pullback) to buy more gold. However, on most days, the only way to get in on a pullback is intraday. Even when Dubai defaulted and gold went down $61 in one day as everyone bought US dollars for safety, gold buyers came in and erased most of the gold losses the same day. 2 days later, gold was at another record high. It would not surprise me if countries continue to make statements or take other actions that they believe will cause the price of gold to go down, so they can buy more.
The US is "supposed" to own a lot of gold, but we may find out that a lot of it was "swapped" to "stabilize" the price, and all we actually are holding is a portion of whats left of it, and a lot of IOU's. As for China, to bring their gold reserves to a reasonable level vs paper, they would need to buy between 6,000 and 10,000 metric tons of gold, which would be between 3 and 6 years of 100% of total world gold production. That was according to a Chinese banking/currency analyst, recently, I believe. If I was in the market to buy that kind of quantity, I'd be trying to talk down the price, too. Otherwise, they will be left holding US dollars. PS: If the US actually has the actual gold they are supposed to have, it would not be worth enough to pay the trade deficit for more than 12 months even at todays reduced levels even if gold was $1200 per oz.
It is a catch-22 situation. If dollar falls,then gold will rise; China wants gold to protect against decline, but gold is too high to buy. If dollar rises, then gold will fall; china does not as much gold to protect against dollar falling. Gold direction will be decided by U.S. economy, in reverse correlation. Gold will head down if U.S. economy keeps improving.
So, do you think they will lend us another trillion this year? As long as they keep buying oodles of dollars, "All is well", but when they try to slow it or stop, who will buy them all? We need someone to step up and buy another $1.8 to 1.9 trillion this year from the looks of it. That's more than what the whole world saves in a year, all combined.
The primary purpose of China buying U.S. debt was to keep Yuan from rising, therefore competitive exporting. It was not for rising value of dollar. But the crisis has changed it all. U.S. market will be less important to China, as a source of growth since U.S. is less capable of consuming and China is encouraging domestic consumption like mad; and also China is having a feeding frenzy on buying up substantive assets around world. I would guess China will have a stable debt relationship with U.S., will not have substantial increase or decrease.
Gold has always taken the stairs up and the elevator straight down. It's happened before, it will happen again. History rhymes...
Printing dollar may be a venue to get out of a crisis, but it is not a perpetual solution for U.S. prosperity. The special status of U.S. dollar depends on the faith of world in it, the more U.S. uses/abuse it by reckless printing the less valuable it becomes. It is like biting off flesh from your arm to fend off starvation. There may divergence between decision makers(Fed) and American people: a weakened U.S. may be more tame for them to rule/govern. U.S. prosperity may not be the sole purpose of the whole deal. What can lead/renew prosperity for U.S.? next big thing, on a scale of the Internet, digital computer, etc; or winning a new world war. I do not see them coming for U.S. Hay, I am just a trader, want to make a living. Why do I care?