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The Wall Street
Journal reports that gold price rises on china reserves
increase.
(emphasis mine) [my
comment]
APRIL 24,
2009, 7:34 A.M. ET
Gold Price Rises On China Reserves Increase
By
Elisabeth Behrmann
SYDNEY
(Dow Jones)--Gold prices rose in Asia Friday after China said it had
raised its gold holdings to 1,054 metric tons, prompting renewed speculation
that Chinese buying could be on the increase.
Official news agency Xinhua quoted the country's top foreign exchange
regulator, Hu Xiaolian, as saying that China's gold reserves had risen 454
tons since 2003, the first public acknowledgment of a rise in China's gold
holdings in years.
Government data at the end of March had pegged its gold holdings at 600
tons, a figure unchanged since December 2002. However, the increase in recent
years in China's foreign exchange reserves to nearly $2 trillion suggests the
proportion of reserves held in gold might also rise accordingly.
Still, at current prices, China's additional 454 tons would be worth around
$13 billion, a fraction of its total foreign exchange investments. [For
now…]
Hu, head of the State Administration of Foreign Exchange (SAFE) which manages
the nation's foreign exchange holdings, said that China's gold reserves had
increased gradually and had come from domestic sources.
The new figure leaves China as the fifth biggest holder of gold after the
U.S, Germany, France and Italy. Including Switzerland's 1,040 tons, six
countries and the IMF now have gold holdings of more than 1,000 tons.
"There has been a lot of speculation that China has been accumulating
gold and this is the confirmation people have been looking for," said
one trader, who declined to be named.
Following the news, spot gold in Asia rose to a three-week high of $913.05 a
troy ounce, up $9.25/oz on its New York close.
Liu Xu, gold analyst at Capital Futures in Beijing, said he believes most
of China's additions to its reserves began in the second half of 2008, when
market talk of SAFE's gold buying first began to circulate.
A trader with a European investment bank based in Singapore said China's
SAFE had been buying gold during the past two weeks.
Another theory is that some of the reserves increase could be the result of
refining existing holdings: gold previously held by China that wasn't of
sufficient quality to be included in official reserves has since been refined
to an acceptable standard.
Other traders pointed to banks positioning themselves for news of Chinese
buying. They said two Wall Street banks had in recent weeks bought call
options on gold futures trading on Comex, which would give them the right to
buy the metal at a certain level if prices rose.
One trader in Sydney said at least one investment bank had bought "a
bunch of" Comex calls, maturing in December 2009, at strike prices of
$1,000/oz and $1,200/oz.
Gold reserves are high on the international agenda, after participants at
London's recent G20 meeting reheated a proposal to sell 403 tons of the IMF's
vast gold holdings of 3,217 tons to fund financing programs for poor
countries. [IMF gold sale is a joke. Even if the IMF sale does
go through, China and other central banks will buy all of it. IMF gold will
never reach the market.]
Business
Intelligence reports that gold investment set to soar as market
dynamics shifting.
Gold
investment set to soar as market dynamics shifting
Source: BI-ME and agencies , Author: BI-ME staff
Posted: Sun April 26, 2009 3:05 pm
INTERNATIONAL. Gold investment as a proportion of total demand is expected
to reach a new high in the quarter as the structure of the market is changing,
according to a senior World Gold Council(WGC) official.
Marcus Grubb, managing director of investment research and marketing at the
WGC, said: "You are seeing a shift in the dynamic of the gold
market."
In 2008, Gold Investment demand accounted for 30% of overall gold demand,
while jewellery demand contributed approximately 58% of the total.
Grubb explained that concerns over the global economy and a desire to
diversify look set to reverse that trend.
Speaking this week at an ETF securities seminar in London, he said: "The
structure of the gold market is changing. In the first quarter I think
investment demand could be higher than 30%."
"ETF investment is in its infancy, and so is gold investment,"
he said. "Most allocations of gold are zero." [Exactly. Most
investors still think “cash” (the least risky investment option)
means short-term treasuries or dollar deposits. They will learn differently.]
"You would only need a small shift in allocations to gold in segments
of private and institutional wealth where they're not currently invested to
have a major impact, when mining supply is only 2,400 tonnes a year."
He said gold supply was likely to be supported by scrap inflows, which he
said will probably head above 1,500 tonnes this year, offsetting flat or
slightly declining mine supply.
"The growth in investment is extremely strong," he said.
"It is being led to some extent by ETFs [which means paper gold is still
absorbing the majority of gold demand]."
"People are worried about the financial system, they're worried about
credit, the issuance of paper, the bailouts... Many investors we talk to
think that is going to create inflationary pressure in the world economy in
the future [because it will]," he said.
"You need an inflation hedge in your portfolio, and that is causing
people to buy gold."
Investment inflows into gold-backed, exchange-traded funds jumped to an all-time
high in the first quarter of this year, boosted by a combination of risk
aversion and economic uncertainties, the WGC said this week.
Investors bought a record 469 tonnes in gold ETFs during the quarter,
surpassing the previous high of 145 tonnes set in the third quarter of 2008. Total
bullion holdings in gold ETFs rose to 1,658 tonnes in the first quarter, WGC
said in its quarterly investment report.
"Gold has been one of the few assets that has genuinely provided
investors with diversification throughout the financial crisis," said
Natalie Dempster, head of investment, North America, for WGC.
Bullion holdings of SPDR Gold Trust, commonly called GLD among traders,
was near its all-time high at 1,105.98 tonnes as of 20 April. [GLD = Paper
gold. Stay away from it.]
GLD, the world's sixth largest gold holder behind the government of Italy,
saw its holdings surge 75% in the last 12 months. [ie: GLD has absorbed
billions of dollars in gold demand.]
Gold ETFs are listed on stock exchanges and offer investors exposure in
bullion without taking physical delivery [GLD investors are pretending they
own gold. They don’t]. Sponsors of the funds buy a matching amount
of physical gold and keep it in bank vaults. [No one knows what the
sponsors of GLD do with investors funs, because their gold hoardings
aren’t audited. However, there is zero evidence of GLD gold physical
gold purchases, and, no matter how many hundreds of tons are
“supposedly “accumulated, GLD never has any storage issues with
insufficiant vault space (almost like the gold doesn’t exist)]
Average gold price volatility, on a 22-day rolling basis, dropped to 29.2% in
the first quarter, down from 44.8% in the fourth quarter of last year.
Volatility in gold prices was still above its long-term average of 13%
because of economic uncertainty. However, it remained well below that of the
volatile US stock market, measured by the S&P 500 index, at 49% in the
same period, WGC said.
WGC said it will release comprehensive first quarter supply and demand statistics
in mid-May in its "Gold Demand Trends" report.
Investment in the SPDR Gold Trust fell 1.5 tons to 1,104.45 tons Thursday,
according to the company’s Web site, the first drop since 17 April.
Meanwhile, Gold rose to a three-week high this week, its first weekly gain
since March, after a report that China has increased its reserves of the
precious metal by 76% since 2003.
China has the world’s fifth-biggest holding by country, said Hu
Xiaolian, head of the State Administration of Foreign Exchange.
China increased its reserves by 454 tons to 1,054 tons through domestic
purchases and refining scrap metal, Hu said in an interview with the Xinhua
News Agency Friday. The amount is more than Switzerland’s 1,040 tons,
World Gold Council data show, and is worth US$31 billion at current prices.
China's acquisition of bullion reserves is ``a very important signal to
the market,'' [hell yes! It is huge.] said Grubb.
``The other signal to the market is clearly that they have probably sold
dollars in order to raise that weighting.''
``It does beg the question for other central banks in Asia as to whether
or not they should be so exposed to dollars,'' Grubb said at a conference
today in Zurich. ``If you look at reserve-assets holdings around the world,
most of the gold is held in North America and in Europe by central banks.
The strength of the US Dollar is "a temporary phenomenon [Agreed], if
you look at the size of the bailout packages in North America the fact that
the US economy may well enter a depression....there is a real fear of
that," Grubb told Reuters in March.
"In that scenario I wonder what will happen to the US Dollar [it
becomes wallpaper?]," he added.
Such a decline would apply pressure on Gulf Arab states which have faced
popular pressure to ditch their currencies link to the greenback and switch
to fight imported inflation when the dollar was weak.
"It would certainly be [a concern] to all regions pegged on the
dollar....because they have run surpluses, and the Western countries have
been in deficits. They have huge accumulation of dollar reserves," said
Grubb.
Bloomberg reports
that China increases gold reserves 76% to
fifth-largest.
China Increases Gold Reserves 76% to Fifth-Largest
By Eugene Tang and Bob Chen
April 24 (Bloomberg) -- China boosted its gold reserves by 76 percent
since 2003 and has the world's fifth-biggest holding by country, said Hu
Xiaolian, head of the State Administration of Foreign Exchange.
The nation increased its reserves by 454 tons to 1,054 tons through
domestic purchases and refining scrap metal, Hu said in an interview with the
Xinhua News Agency today. The amount is more than Switzerland's 1,040 tons,
World Gold Council data show, and is worth $31 billion at current prices.
China has the world's largest foreign exchange reserves at $1.95 trillion as
of March 31, according to state administration data. The holdings have
climbed about sixfold in the past six years as the country had record trade
surpluses and inflows of foreign investment. Gold prices have almost tripled
to more than $900 an ounce from $337.
"Chinese foreign-exchange reserves have absolutely exploded in the
past few years," said Jan Lambregts, head of Asia research at Rabobank
International in Hong Kong. "We shouldn't be surprised that they're
adding a lot of all asset classes. I don't think they're shifting away from
U.S. dollars into gold."
Gold climbed to a record $1,032.70 an ounce on March 17 last year and traded
0.9 percent higher today at $912.08 an ounce at 3:18 p.m. local time in
Singapore.
Debt Holdings
Chinese Premier Wen Jiabao has expressed concern the dollar will weaken,
eroding the value of China's holdings of Treasuries, as the U.S. borrows
unprecedented amounts to spend its way out of recession. China is the biggest
overseas owner of U.S. government debt, holding notes totaling $744 billion
at the end of February, according to U.S. data.
Jesse Wang, executive vice president of China Investment Corp., has said the
nation's $200 billion sovereign wealth fund may invest in
"undervalued" commodities. Zhang Guobao, head of the National
Energy Administration, said China should invest more in commodities instead
of hoarding the dollar, Xinhua reported on March 7.
China, the world's biggest gold producer, has increased its holdings
before, Hu said in the interview carried on the administration Web Site.
They rose from 394 tons to 500 tons in 2001 and to 600 tons in 2003, it said.
China has told the International Monetary Fund of the recent changes and the
new amount will be reflected in the central bank's balance sheet and
statistical reports, it said.
'Support Prices'
"This shows a change in attitude in Asian central banks," said
Si Kannan, associate vice president at Mumbai-based Kotak Commodity Services
Ltd. "While the IMF is selling gold, Asian central banks are
diversifying into gold. That's a good thing, in times of dollar uncertainty
and the global volatility in the forex market," he said by phone from
Mumbai today.
China's gradual increase in gold reserves and increasing jewelry demand
from China and India "will support gold prices," Kannan said.
…
"My opinion has always been that China should increase its gold
holdings [Agreed]," Hou
Huimin, vice chairman of the China Gold Association, said by phone from
Beijing today. “China should strive to play a more proactive role in
the global financial market by adding more gold.”
The U.S. [“supposedly”] has
the world’s biggest gold holdings at 8,134 tons, followed by Germany
with 3,413 tons, World Gold Council data show. France has 2,487 tons and
Italy 2,452 tons, while the IMF has 3,217 tons, according to the council.
My reaction: China
is increasing its gold reserves. This is big news which is very
bullish for gold prices.
1) China has increased its gold reserves by 454 tons to 1,054 tons through
domestic purchases and refining scrap metal
"There has been a lot of speculation that China has been accumulating
gold and this is the confirmation people have been looking for"
2) Most of China's additions to its reserves likely began in the second half
of 2008, when market talk of SAFE's gold buying first began to circulate.
3) China's SAFE has apparently been buying gold during the past two weeks.
4) Wall Street banks have been buying call options on gold futures, with at
least one investment bank buying Comex calls, maturing in December 2009, at
strike prices of $1,000/oz and $1,200/oz.
5) Most allocations of gold are zero, with most investors still thinking of
short-term treasuries and dollar deposits "cash" (the least risky
investment option).
6) Most gold demand is still being absorbed by the paper market, as shown by
inflows into GLD and purchases of call options on gold. This will soon
change.
Conclusion: China's
gold acquisition is a very important signal to the market. It shows
deteriorating confidence in the dollar and will increase pressure on central
banks in Asia to diversify away from the dollar.
More importantly, the rise in China’s gold reserves means that an
important inflection point in the global gold market has been reached. Gold
inflows into central bank vaults now most likely exceed outflows. For the
first time in over three decades, the world’s central banks are net
buyers of gold instead of net sellers. When the dollar begins to collapse,
this net buying will rapidly accelerate as gold reclaims its rightful spot as
the reserve currency of choice.
Eric
de Carbonnel
Market Skeptics
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