China's Metal Reserves & the US Dollar

Hot diggity, it's Christmas in May (if you're a resource investor, that is). I point you to this story in the Wall Street Journal (subscription required)...

SHANGHAI, China -- China says it intends to build strategic reserves of minerals like copper and uranium, in addition to the energy stockpiles it already has said it will amass, in the latest sign of Beijing's concern about ensuring an adequate supply of natural resources.

The Ministry of Land and Resources said in its five-year plan that it will build up reserves over the next four years of uranium, copper, aluminum, manganese and other minerals that the country "urgently needs." The statement follows pledges by Beijing to begin filling four strategic reserves of crude oil as soon as this year.

...

The Land Resources ministry said it plans to have as many as 10 metal reserves with holdings of 20 million metric tons of copper and 200 million tons of bauxite, which is used to make aluminum. It also said it will have two or three backup stockpiles of oil containing 4.5 billion to five billion metric tons and a similar number of coal reserves with 100 billion tons of stock.

Although analysts said the numbers are high, wording of the ministry's plan suggests some of the reserves will be in proven -- or unmined rather than extracted -- form.

...

If Beijing attempted to purchase outright the amounts suggested by the Land Resources ministry, "it would drive [prices of] the world's commodities out the roof," said Jim Lennon, an analyst at Macquarie Bank in London. He added, however, that China wants to secure access to these commodities rather than simply stockpile them.

Here's my take: No one knows for sure what the Chinese are going to do. For months, they've been trying to talk the commodities markets down -- particularly oil and copper -- with no success. However, I see this one more bullish force for a very bullish trend in commodities.

But wait -- it gets better. Check out this story (NO subscription required)...

China urged to quadruple gold reserves

BEIJING, May 9 (Reuters) - Some Chinese economists are urging Beijing to quadruple its gold reserves to 2,500 tonnes from the current 600 tonnes because the country foreign exchange reserves had become the world's largest, an official industry newspaper reported on Tuesday.

Oh, if this is true ... well, you can see why gold sailed through $700 without looking back. But here's my question: What if the Chinese are ALREADY building their gold reserves -- using that humongous pile of dollars they have stashed away. That would drive up the price of gold -- and drive down the value of the dollar, which is exactly what we're seeing right now.

And if they're not doing it yet -- well, the fall in the dollar, and the rise in gold, that we're seeing now are just a shadow of what's to come.

Check out my new gold and energy blog at MoneyAndMarkets.com