China has been furtively buying gold since 2003

There's a rule of thumb investors should consider: when a country's central bank or sovereign fund managers publicly state their intentions, bet on them doing the exact opposite. A few months ago, the Chinese Finance Minister was questioned on what their plans were for their surplus reserves. He basically said they were going to continue purchasing dollar-denominated assets, namely US Treasury bills and bonds. His mock rhetorical question: "What else are we going to buy--gold?"

Well, it's been now confirmed by this Reuter's article that is exactly what they have been doing--on the sly.

http://www.reuters.com/article/ousivMolt/idUSTRE53N18T20090424

Note the last portion of the article on the second page:

"The comments indicate that China will buy more gold as reserve to improve its foreign reserve portfolio. This is a trend," said Yao Haiqiao, president of Longgold Asset Management.

Hou Huimin, vice general secretary of the China Gold Association, said China should build its reserves to 5,000 tons.

"It's not a matter of a few hundred, or 1,000 tons. China should hold more because of its new international status, and because of the financial crisis," he said.

"The financial crisis means the U.S. dollar value is changing fast, and it may retreat from being the international reserve currency. If that happens, whoever holds gold will be at an advantage."

The European Central Bank recommends its member banks hold 15 percent of their reserves in gold, but among Asian nations the percentage is far smaller, said Albert Cheng, World Gold Council managing director for the far east.

My comment: if the Euro central bank is recommending their member banks hold 15% of their reserves in gold, would it not be prudent for individuals also? And if China continues to buy gold in lieu of US Treasury bonds, what are the implications?

My long position on gold and silver just got more bullish, as did TBT, a double short on 30-year Treasury bonds (a wager bond prices will drop accompanied by a rise in bond yields). Again, believe what they do, not what they say.