Will the Chinese demand gold as security to help the Eurozone restructure its debts? Your view?

The international news agencies are reporting that French President Nicolas Sarkozy plans to call Chinese President Hu Jintao tomorrow to discuss China helping to fund Europe through their sovereign debt and bank capital crisis.

That has raised the idea that perhaps China will do it, taking European gold as security.

That's a no brainer for China, says Dan Denning, editor of the Daily Reckoning Australia.

If Europe defaults China gets the gold. And he who has the gold gets to make the rules of the New World Order. China could back its currency with gold and by 2015 it might be ready to make the Yuan freely exchangeable worldwide. It would take its place as the new world reserve currency.

According to a recent list, the ECB had 520 tonnes of gold, Germany had 3,400 tonnes, and France had 2,400 tonnes. Just those three have 6,300 tonnes and at todays sky-high prices, that is worth some US$345 billion. These volume totals were as at the end of 2010, converted at today's prices.

The IMF had 2,850 tonnes (US$157 billion) in its reserves, and PIIGS can muster up at least 3,275 tonnes (US$180 billion).

(In contrast, the US held more than 8,100 tonnes (US$445 billion) and China currently held 1,050 tonnes (US$57 billion) at the end of 2010.)

But it seems unlikely the Europeans would pledge their gold to China. However, it you don't use it as security in times of stress or need, what good is it? When would you use it? Failure to use it in such times undercuts gold's role as 'money' if it is horded just for its own sake.

Your view ?

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