Nation urged to increase holdings of gold
BEIJING - China should further diversify its foreign-exchange portfolio and make more gold purchases when the metal’s price dips but is still at a relatively high level, a senior central bank official said on Monday.
“The Chinese government should not only be cautious of the imported risk caused by rising global inflation, but also further optimize its foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation,” said Zhang Jianhua, director of the research bureau affiliated with the People’s Bank of China (PBOC).
He made the remarks in an article in the Beijing-based Financial News, a newspaper run by the PBOC.
The spot gold price declined 16 percent over the past three months to less than $1,600 an ounce last week. It touched a record of more than $1,900 in early September.
Zhang said bleak economic conditions, increasing international liquidity as countries turned to monetary easing and the resulting high inflation had dampened investors’ confidence. He said that gold had become the only “safe haven” for risk-averse investors. “No asset is safe now. The only choice to hedge risks is to hold hard currency - gold.”
Zhang didn’t specify what proportion of China’s $3.2 trillion foreign reserves should be held in gold.
China is the largest foreign holder of US Treasury securities, having invested about one-third of its foreign reserves in those bonds. About 20 percent has been invested in euro-denominated assets.
As of this month, China ranked sixth worldwide in gold holdings, with about 1,054 tons. The value accounted for about 1.8 percent of the country’s total foreign reserves, according to a report released by the World Gold Council (WGC).
The US topped the list by holding more than 8,133 tons of the metal, 76.6 percent of its foreign reserves by value, while Germany ranked second by holding 3,396 tons, 73.7 percent of its reserves.
In 2011, countries including Russia, Thailand, South Korea, Bolivia, Colombia, Kazakhstan and Venezuela purchased the metal to increase gold holdings of their central banks’ reserves.
China didn’t sell or buy gold from 2010 to 2011, according to WGC statistics.
“The PBOC may have realized that its euro-denominated assets are in greater danger than it expected and started to eye gold,” said Li Jie, director of the foreign-reserves research center at the Central University of Finance and Economics.
“But it’s impractical for China to put its foreign reserves into commodities, including gold, because all these markets are too small for such a big hoard.
“For example, China’s purchasing gold would push up the price of the metal and increase its own cost,” said Li.
Li added that there was no easy way for China to get as much gold as it wished because major economies such as the US hold the majority of gold and market supplies are very limited.
China produced 31.75 tons of gold in October, the Ministry of Industry and Information Technology said on Monday. Gold production gained 5 percent in the first 10 months of this year to 290.752 tons.
Driven by increasing demand from risk-averse investors, the international price of gold repeatedly reached new highs in 2011.
Central banks made their biggest gold purchases for a single year in 2011 since the Bretton Woods system dissolved in 1973 and major currencies began to float against each other without being pegged to gold. China has vowed to further diversify the nation’s foreign-reserve portfolio amid growing global financial uncertainty. In October, it cut holdings of US Treasury securities by $14.2 billion to $1.13 trillion, the lowest level this year.
Media reports have said that the PBOC plans to create a fund worth $300 billion to invest the country’s foreign reserves in the US and European markets. The fund will reportedly seek to invest in real assets and company shares, rather than government securities.
By Wang Xiaotian
Source: http://www.chinadaily.com.cn/usa/business/2011-12/27/content_14332943.htm
Gold Tops $1,800 in N.Y. as Europe Crisis Spurs Investor Demand
Nov. 8 (Bloomberg) — Gold futures topped $1,800 an ounce for the first time in almost seven weeks on concern that European leaders will be unable to contain the region’s debt crisis, fueling demand for the precious metal as a haven.
Italian Prime Minister Silvio Berlusconi failed to muster an absolute majority on a routine parliamentary ballot today, fueling more calls for his resignation. Federal Reserve Chairman Ben S. Bernanke signaled more monetary stimulus may be needed to cut unemployment, while the European Central Bank last week unexpectedly lowered interest rates. Gold has rallied more than 11 percent since the end of September.
“The turmoil in Europe has brought the fear trade back to gold,” Lance Roberts, the chief executive officer of Houston- based Streettalk Advisors, said in a telephone interview. “Also, a renewed wave of policy easing by central banks is helping gold.”
Gold futures for December delivery rose 0.5 percent to close at $1,799.20 an ounce at 1:47 p.m. on the Comex in New York, after touching $1,804.40, the highest since Sept. 21. Prices fell to $1,785.70 in after-hours trading.
Earnings growth in Europe will stagnate in 2012 as governments rein in spending and banks shrink their balance sheets, according to Gary Baker, the London-based head of European equity strategy at Bank of America Corp.
“Fundamentals are stronger than before, with the EU crisis more complicated than before,” Pradeep Unni, an analyst at Richcomm Global Services in Dubai, said in a report. “Retracements and corrections are possible as we climb above $1,800, but stay invested.”
Extended Rally
Berlusconi offered to resign as soon as Parliament approves austerity measures in a vote next week, Italian President Giorgio Napolitano said tonight in an e-mailed statement after meeting Berlusconi in Rome.
Bullion is in the 11th year of a bull market, and futures reached a record $1,923.70 in New York on Sept. 6 as investors sought to diversify away from equities and some currencies. The precious metal has gained 27 percent this year.
Silver futures for December delivery advanced 0.9 percent to close at $35.153 an ounce on the Comex, rising for the second straight day.
On the New York Mercantile Exchange, platinum futures for January delivery rose 0.9 percent to $1,673.10 an ounce. Palladium futures for December delivery climbed 2.3 percent to $677.25 an ounce.
-With assistance from Phoebe Sedgman in Melbourne, Adam Haigh and Nicholas Larkin in London. Editors: Steve Stroth, Daniel Enoch
To contact the reporter for this story: Debarati Roy in New York at [email protected].
To contact the editor responsible for this story: Steve Stroth at [email protected]
By Debarati Roy
Source: http://www.businessweek.com/
Recent sell-off sets up next gold rally
The following is a guest post by Lawrence Carrel, author of “ETFs for the Long Run” and “Dividend Stocks for Dummies.” The opinions expressed are his own. Full disclosure: The author has had 7 percent of his personal retirement account in a gold ETF for the past four years.
When the price of gold plunged 20 percent last month, many market watchers declared the gold boom over. Stalled, yes; ended, no, according to many gold analysts, who believe the precious metal may instead be near a new sustained rally.
“I can tell investors don’t sell off your gold,” says Martin Murenbeeld, the chief economist at DundeeWealth. “We’re at a crossroads here.”
During the summer, gold surged 29 percent to a record high of $1,920 a troy ounce. This jump caused the price to drastically detach from its 200-day moving average, an important trend line in technical analysis that the gold price had closely hugged for much of the last decade. Technical analysts considered this jump unsustainable and in September gold gave back most of these gains.
Gold fell to a low of $1,534.49, much to the technicians delight, and it bounced off the 200-day moving average’s support level of $1,527. While most gold watchers expect the metal to experience turbulence during the next few months, the world hasn’t changed much, and gold prices may climb higher because of its status as a safe-haven during turbulent times.
“Have the countries around the world solved the debt crisis?” asks Nick Barisheff, president of Bullion Management Group, a precious metals investment company based in Toronto. “Have the bailouts ended? Have their currencies stopped tanking?“ With the world already worried about Greece’s fiscal problems, gold summer’s rally was sparked by fears that the U.S. might default on its debt.
After Standard & Poor’s downgraded the U.S. debt, investors flocked to gold as one of the few safe havens left. This raised the specter of recession, which is never good for gold. The combination of increased collateral requirements for trading with falling commodity and stock markets, gold tumbled as investors sold it for liquidity amidst a flurry of margin calls.
Still many analysts think the gold market isn’t in a bubble and that the run-up is far from over. Analysts say a bubble is when an asset goes up exponentially 15 to 20 times.
Gold is up seven times during the last decade. Since its low on Sept.26, 2011, gold has jumped 9 percent. Most analysts expect the price to retest September’s low during the next few months. If it bounces again that would be the buy signal.
Ed Carlson, Chief Market Technician at Seattle Technical Advisors.com says gold could fall as far at $1,460. But even Carlson predicts a new sustained advance will begin after Thanksgiving.
The fundamental factors for being bullish are also compelling. Low interest rates are very good for gold. In August, the Federal Reserve promised to keep rates low for the next two years. Additionally, most analysts expect the European Central Bank (ECB) to stem the European debt crisis with a flood of new money.
“The relationship between gold and world liquidity is very direct,” says Murenbeeld. “If countries print money gold goes up.” Murenbeeld says there is a high probability that the ECB and the European System of Financial Supervisors (ESFS) will insert a significant amount of money into the system, anywhere from 1 trillion euros to 2 trillion euros.
“This liquidity will stabilize the banking sector so that it can withstand a default from Greece and speculation of default from other countries. All that plays into the hands of gold.” Murenbeeld recommends investors use a dollar cost averaging strategy here. “When they do the bailout that will dilute the currency, “ says Barisheff.
“The governments will be forced to print more money because politically that’s the least painful thing to do. And as they do the price of gold goes up.”
However, Barisheff warns that it’s easy for governments to lose control of their currency, which can send a country into hyperinflation. He says gold will stop rising when governments institute sustainable economic policies, but if inflation isn’t controlled, gold could rise as high as $10,000 in five years. “And there is no appetite to do anything sustainable.”