1,500,000,000 Potential Chinese Gold Bugs - A New1,500,000,000 Potential Chinese Gold Bugs -
A New Demand Factor
Peter Cooper
11 March 2009
The inscrutable Chinese are hardly likely to inform the world that they
are on a gold buying spree for fear of sending the gold price through
the roof before they can finished their acquisition plans.
China's gold reserves amount to 1,054 tons, ranking fifth in the world,
said Yi Gang, central bank vice governor on Tuesday.
China is the largest gold producer in the world, with more than 300 tons
of gold produced annually, all of it consumed locally and not exported.
Private Gold Reserves
China is the second largest gold consumer in the world, with a
consumption of over 400 tons of gold a year, second only to India.
And it has been conservatively estimated that there are far more
than 3,000 tons of gold accumulated among Chinese people.
Indeed it was only at the start of last year that China suddenly
announced to the IMF that it had doubled its official gold reserves
to 1,054 tons from 2003.
Nobody knew anything about it before then, although there must have
been suspicions in the trade.
Ah but let me run that past sharp readers again.
Yesterday the Chinese central bank announced gold reserves of 1,054
tons, exactly the same figure as it gave the IMF a year ago.
Is that not suspicious?
When will we see the true figure including whatever they bought
last year?
'Gold is not a bad asset but currently a few factors limit our ability
to increase foreign-exchange investment in gold,' Mr Gang, also
director of China's State Administration of Foreign Exchange, told
a news conference during the National People's Congress.
He went onto explain that the supply of gold was too limited for the
precious metal to play a major role in currencies, and that if
China bought too much the price would go up.
Accumulating Gold
But China should be judged on its record and not its rhetoric.
In 2006 the World Gold Council said its central bank held 600 tons and
had doubled its reserves to this level at the time when the UK was
selling its gold reserves.
China has clearly been increasing its gold reserves steadily for a
decade and has benefited from the quadrupling of gold prices over
that period.
But never mind the central bank, surely the surging private gold and
silver holdings are the thing to watch.
When a population of 1.5 billion Chinese become gold bugs, then $5,000
an ounce gold will be seen as far too conservative as a forecast and
$200 silver will also be history.
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