In regards to whether or not China truly sold down its holdings of U.S. treasuries recently, the situation remains a bit murky. But Citi's Alan Heap thinks it happened for sure.

Moreover, he thinks China has a plan for the cash they pulled out of the U.S. -- They'll use it to buy 191 tonnes of gold from the IMF.

Alan Heap @ Citi: The IMF announcement that the fund intends to sell 191t of gold sent a quiver through the market last week. However there was nothing new here. The gold is the residual from the planned sale of 403 tonnes which will partially finance new loans to developing countries.

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The bank said that sales would be phased over time. But also kept open the possibility of direct transfers to other central banks.

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The PBC [People's Bank of China] is the most likely central bank buyer. The bank is deeply dissatisfied with the performance of its US treasury holdings and has made clear its intention to diversify including into gold. In November and December the PBC sold USD46bn of treasures; they must be buying something.

While he remains rather neutral on gold, with a 2010 target price of just $1,162, he also highlights how Gold bullion demand picked up in Q4 as well, driven by 'Unidentified Investment'. Which could be good news for early 2010.

(Via Citi, Commodity Heap, Alan Heap, 19 Feb 2010)