The prospect of a stable currency not only reduced inflation and its multiple distortions, it also increased the market's confidence in China, and helped boost investment in the country, since it all but eliminated foreign exchange risk. China's central bank started buying up capital inflows in earnest in early 2001, right about the time that gold was hitting a multi-year low. Don Luskin, a good friend, got me started down the path to an explanation for how China's forex reserves are connected to the rise in the price of gold.