Recently China decided to de peg its currency from the US dollar and allow it to re-value, albeit to a limit of 1.5% a year. With this global markets rallied, commodities rallied with the hope that the trade imbalaces in the world would reduce and economic recovery can be faster. Keeping aside my thoughts that this is just a move based on political pressure before G-20, and the fact that US is not going to let them truly revalue as they may overpower the dollar.
However if you are amongst those who believe that China is talking the truth and will allow full revaluation over the next decade, what should you buy? Well, considering it is impossible to quantify which country will gain how much from the revaluation. I would say Gold is the asset class to be in for the simple reason that if the yuan is revalued, it could become a much stronger currecy than the US dollar (even the ADB has released a report stating the same). If that happens why will China keep its reserves in the US treasuries as they would become meaningless. The only other place where they can park money is in gold. They would shift all their trillions of dollars from US treasury to gold making it the asset class to be in!
I agree gold is best asset class but the concern is that chinese are saying they are not going to buy gold anymore...
ReplyDeleteI am buyer of gold because indians are the biggest consumers and they are getting rich day by day leading to additional demand...supply as usual is stable.