China Buys Gold, Ditches US Debt: $100B FX Reserve Swing

In the first quarter of 2022, our country's foreign exchange reserves decreased by $62.2 billion, and in the second quarter, they decreased significantly again by $116.8 billion.

The third quarter continued to see a reduction, with a decrease of $42.3 billion.

The reduction in the first three quarters exceeded $220 billion!

The Federal Reserve's continuous interest rate hikes have been suppressing global currencies, which also affected our country's foreign exchange reserves.

China proactively responded by making consecutive moves to resolve the crisis, and in the fourth quarter, the foreign exchange reserves increased significantly by nearly $10 billion on a quarter-over-quarter basis.

In this round of moves, the Federal Reserve lost!

In the first three quarters of last year, our foreign exchange reserves were suppressed due to the continuous rise of the US dollar.

On the other hand, we achieved a high trade surplus thanks to strong trade development, and at the same time, we have been continuously adjusting our foreign exchange reserves, selling a large amount of US Treasury bonds, and buying a large amount of gold.

This combination of moves has been very effective.

Finally, in the fourth quarter, our situation underwent a dramatic change.

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China has been continuously selling US debt throughout the year.

In 2013, our holdings of US Treasury bonds reached their peak, and since then, we have started to gradually reduce our holdings.

However, the pace of reduction in previous years was slow, and we still held $1.08 trillion in US debt at the end of 2021.

Last year, the pace of selling accelerated, and according to the latest data, we have reduced our holdings to $870 billion in November 2022, a significant reduction of $210 billion.

The sale of US debt not only reduced the United States' dependence on the US dollar and US debt but also reduced the losses brought about by the continuous decline in US Treasury bonds this year.

The US debt market fell sharply last year, with the US bond index falling by a maximum of 18%.

If we had continued to hold more than $1 trillion in US debt, the losses would have been even more severe.

Fortunately, by reducing our holdings of US debt, we have minimized the losses.

Now, US debt has reached the limit set by Congress, which means the United States will issue more Treasury bonds.

This behavior of robbing Peter to pay Paul will further lead to a decrease in the value of US debt held by various institutions.

There is no doubt that selling US debt is the best way to reduce losses.

In addition, we have also increased our demand for gold, and the central bank's gold reserves have increased in the past two months.

On the contrary, in the next few years, the US economy will face a severe recession.

Before this, the US manufacturing PMI has fallen below 50, indicating that the manufacturing industry is shrinking, and the PMI in December was a monthly decline for five consecutive months.

However, in the United States, the service sector contributes more to the economy, accounting for more than 70%.

Therefore, the official data released by the United States shows that the service industry PMI is also below 50, which is shocking news to everyone.

It was previously expected that the service industry PMI would decline but would still be far above 50.

However, unexpectedly, the final result was only 49.6, more than 5 percentage points lower than the previous month and the market expectation.

If this number cannot recover quickly in the next few months, the United States will remain in a recession for a long time, and the United States will have to lower interest rates.

Moreover, the current US retail data has also declined on a month-over-month basis, indicating that domestic consumption capacity is being continuously squeezed by inflation.

The economic growth momentum of the United States in 2023 has disappeared.

It is clear that the Federal Reserve's monetary tightening policy is likely to prove to be a case of cutting off one's nose to spite one's face in the end.