You see where this is going. The Chinese can easily capture a large portion of the “value” of their present dollar holdings through devaluation by moving them into hard assets … arguably even if the (dollar) value of the hard assets a priori is a minority of the total portfolio.
One a deeper level, there is no realistic way to move all of the dollar portfolio into hard assets. Commodities and precious metals markets are simply too small (that even goes for currency markets… nothing comes close to the dollar paper market for depth). There is a maximum practical amount that can be “cashed out” before the dollar starts plummetting and its real value approaches zero. Put another way, it’s impossible to buy 2 billion ounces of gold with the $2 trillion in dollars we started with. China’s challenge, then is to buy as much as they can before the devaluation process gets along too far.
Given that, I think they are doing amazingly well. Most commodities are not even back to 2008 peak levels (gold and silver are a weak point, at new highs since then). But the dollar value “lost” from their holdings can be seen simply as a hidden premium to converting their stash to hard assets. In truth, they will be doing immeasurably better than any nation dumb enough to still hold primarily dollars in its Forex account when this moment comes.
I’m not claiming the Chinese are actually at the tipping point now. But it is obviously the direction in which they are going. Should this trend continue (and there is no reason to believe it will not), a point will come in the near future at which the Chinese benefit more from ditching the dollar (letting it collapse) than propping it up.
The current impact on the market is likely muted — intentionally — by the manner in which the Chinese are going about their hard assets deals. Many are taking the form of long-term contracts where dollars are pledged in exchange for resources (such as oil), as they are output. The impact of such a deal is not felt immediately on the dollar or commodity market, yet the Chinese can basically “earmark” portions of their dollar portfolio as “allocated to hard assets” every time they do such a deal. As a result, in the future, the commodity will be marginally more scarce, and the dollar marginally less desired, which suits China fine from their perspective.