Friday, April 24, 2009

Big BIG BIGGER!!! - China, buying gold

Even when in Vegas I keep in touch with the outside world. I think this is so big that I wanted to get this on my blog. China disclosed that it has been buying gold diversifying some of its reserves. What does this mean and not mean. This does not mean that gold is about to sky rocket (though it may). What it means is that there is starting to be a subtle shift in world central bank thinking on gold. These tremors, these shifts is what as investors you have to pay attention to. Moody's annoucement that it may cut Great Britian's credit rating was such an anoucement. To me it was lke a cannon went off even if it was subtle. Now the Pound plumetted against the dollar before regaining all of it back in 24 hours. No short term impact but it is sighns, signals tat can point you in the right direction as you try to determine what the world is going to look like over the next several years. This China thing is subtle but follow the money, follow the shifts.

From the Financial Times

China has quietly almost doubled its gold reserves to become the world’s fifth-biggest holder of the precious metal, it emerged on Friday, in a move that signals the revival of bullion after years of fading importance.

Gold rose to a three-week high of more than $910 an ounce after Hu Xiaolian, head of the secretive State Administration of Foreign Exchange, which manages the country’s $1,954bn in foreign exchange reserves, revealed China had 1,054 tonnes of gold, up from 600 tonnes in 2003.

The news could spark interest in gold among other central banks. “When the largest holder of foreign exchange reserves discloses an increase in gold holdings, other countries may decide to think more carefully about underweight gold positions,” said John Reade, a precious metals strategist at UBS.

The increase in China’s gold reserves has come primarily from domestic production and refining. However, the news raises questions about the future of Beijing’s foreign reserves policy.

and....of course Europe's central governments were making brilliant moves

China’s accumulation of gold has taken place as European central banks have gradually cut back back gold sales following a 1999 agreement to prevent the market from being flooded after prices were dragged sharply lower after the UK decided to sell part of its reserves.

“China’s announcement signals a broader shift in central banks’ attitude towards gold,” said Philip Klapwijk, chairman of GFMS, the precious metal consultancy.


Russia has being an active buyer, following Beijing’s similar pattern of purchases from local miners. China became last year the world’s largest producer of gold, outranking South Africa.

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