The evidence is clear: China is preparing for a gold standard. Consider the following two data points.
First, China added another 15.98 tonnes of gold in August, as seen on the first chart. China holds in total 1,693 tonnes in reserves, at least that is the official amount. Many analysts speculate that the country is holding much higher quantities, as their domestic production is not exported and its accounting is quite intransparent as evidenced by the limited number of increases on the chart (it is impossible that China is only adding once in so many months). Whatever the real amount is, China is moving towards the top 7 holdings in the world, and shows no sign of deceleration.
Second, China’s foreign exchange reserves fell with $94 billion in August. Since last year, its forex reserves have declined from $4 trillion to $3.5 trillion last month. The trend is clearly down.
Why is China accumulating gold while selling forex reserves? Well, the answer to that question seems obvious. China has a tradition of thinking very long term. Their planning is focused on decades, not months or years like in Western cultures.
China understands very well that the whole world is living on a paper based monetary system, backed by nothing but paper and promises. They are accumulating gold since many years, and the fact that they are decreasing their forex reserves reveals that they believe the debt bubble is closer to bursting. If this is a leading indicator, then we can expect the bursting of the bubble to take place in a couple of years (not yet in the short term, otherwise the forex decline would have been evolved much further).
China is clearly working towards a gold standard, and we would not be surprised that their currency will become a world reserve currency in the coming decade. That way, the world would turn again towards some form of gold standard. As we have said before, gold is a monetary asset, and, in line with history, it has shown its ability to balance a monetary system.