Tuesday, December 1, 2009

Is China Going Crazy After Gold Reserves?

By David Lew
Commodity Online
Tuesday, December 1, 2009


Once again, China is making news on the hottest commodity—gold. China, the largest producer and consumer of the yellow metal these days, has announced that it wants to build up gold reserves. And how much? China says the country is eager to step up gold reserves to a massive 10,000 tonnes in the next 10 years.

Is China going crazy after gold? Yes, it looks if the recent statements coming out from the Chinese government is any indication, China is going indeed crazy after the yellow metal. In fact, gold reserves began to become big news in April this year when China announced that the country had increased its gold holdings to 1054 tonnes from 454 tonnes in 2003. Since then, almost every country—China, India, Russia, Brazil and even Sri Lanka—have been making news by announcing that they all want to build more gold reserves.

Dipping dollar value, ongoing economic recession and stock market fluctuations are the main reasons for central banks of several countries to mull mopping up gold reserves these days. India’s Reserve Bank surprised most other central banks last month by buying 200 tonnes of gold from the International Monetary Fund (IMF). India is these days once again in the fray to buy additional gold reserves from the IMF.

Why is there a scramble for gold reserves by countries like China, India and Russia? Every country these days wants to diversify its foreign exchange reserves by acquiring gold and other hard assets in place of the US dollar that has been dropping in value in the last one year.

On Monday, a top Chinese official announced that the country is eager to increase its gold reserves to 6000 tonnes in the next 3-5 years and 10000 tonnes in the next 8-10 years. Big, golden ambition, indeed. But considering the fact that China has now 1054 tonnes of gold, taking the yellow metal reserves to 10000 tonnes in the next 10 years is going to be a challenging task.

Bullion analyst Mark Robinson says this is the biggest and most ambitious task that China has ever announced. “If China wants to take its gold reserves to 10000 tonnes in 10 years, the country needs to buy or acquire the yellow metal to the quantity of nearly 1000 tonnes per year,” points out Robinson. He says China might now go aggressive on gold production as the country has allocated big funds to find new gold mining destinations.

“China wants to emerge as the global leader in gold reserves. Given the aggressive play that China is showing on gold, it looks perhaps possible that China will emerge as the biggest holder of gold in the world in the next 10 years,” added Robinson.

Which are the countries that own the largest quantity of gold reserves now? Check out here:

**America is the world leader in gold reserves. The United States has 8133 tonnes of gold reserves as on September 2008 that accounts for 76.5% of its foreign exchange reserves.

**Germany has the second highest gold reserves at 3412.6 tonnes.

** France has 2508 tonnes of gold constituting 58.7% of its forex assets.

**Italy has 2451.8 tonnes of gold constituting 61.9% of forex reserves.

**China became the fifth biggest holder of gold reserves with 1054 tonnes.

**Switzerland has 1040 tonnes of gold reserves constituting 23.8% of total forex reserves.

**India which recently bought 200 tonnes of gold from IMF has 557 tonnes of gold reserves representing 3% of total forex reserves.

** The IMF, which currently holds 3,217 tonnes of gold, is the third-largest official holder of the precious metal. The IMF has made gold sales a key element of its new income model aimed at lowering its dependence on lending revenue to cover expenses.

For further reading:
"China to Increase Its Gold Reserves", Erik Bethel, December 1, 2009
"China, gold, and the civilization shift", Ambrose Evans-Pritchard, November 26, 2009

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