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Thursday, February 10, 2011

China's Central Bank Advised to Massively Increase Its Gold Reserves

CAPE TOWN (miningweekly.com) – China’s central bank is being advised to increase its gold holdings nearly tenfold to a level greater than the world’s biggest bullion depository, the US’s "Fort Knox".

Global economist David Hale, who addressed the packed Mining Indaba in Cape Town attended by a record 5 700 people, says that China’s gold reserves are currently at 1 050 t – only $30-billion to $40-billion compared with the country’s total assets of $2,8-trillion.

Various officials in China have proposed the central bank should increase its gold reserves to 10 000 t, which would give China larger gold reserves than Fort Knox.

“This would be a huge development for the gold market,” he says, with global mining output of gold only at 2 500 t a year.

“China will probably start to buy gold in the near future, but they won’t report it for two or three years,” Hale says.

When China announced new gold reserves from 600 t to 1 050 t in April 2009, purchsing had been done in the preceding years..

“The odds very much favour China making, over five years, very large gold purchases, and this in turn makes me bullish on the gold price,” he adds.

In addition to the central bank purchases of gold, preliminary data suggests that the Chinese private sector has bought 300 t of gold in the last year, compared with zero three to four years ago.

Given the rising Chinese incomes and inflation, Chinese private demand for gold could increase in the next few years to the historical levels of India, which for many years has been the world’s largest private buyer of gold.

“China offers the prospect of very healthy demand for gold and this could over the next couple of years set the stage for further major gains in the price of gold.”
Source

The Chinese are waking up to the reality expressed more than 100 years ago by JP Morgan...

"Gold is money. Everything else is paper."

1 comment:

gdelassu said...

I will happily grant that if the Chinese significantly increase their gold purchases, this will (as the article claims) "set the stage for further major gains in the price of gold."

That said, one cannot help but notice that there are few named sources in this article. David Hale in Cape Town is advising the Chinese to buy more gold (gosh, why would a South African encourage someone to buy gold?). Then we have "[v]arious officials in China... propos[ing that] the central bank should increase its gold reserves."

Who are these "various officials"? Surely the answer to that question should make a lot of difference to someone planning to buy more gold on the grounds that Chinese demand will drive up the price.