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Wednesday April 14, 2010 - 18:34:16 GMT
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Gold Reserves: Tough for China to beat US

BEIJING (Commodity Online): China is on a gold buying spree these days. The Chinese central bank—the People’s Bank of China—is taking a series of steps to increase its gold reserves to ensure that the precious yellow metal replaces forex reserves held in the US dollar.

Chinese people in cities, small towns and rural areas are buying gold jewellery, gold coins and gold bars for investment like never before. Gold jewellery showrooms are mushrooming across the Chinese hinterland.

In the last few months, there have been talks of China following India in buying gold reserves from the International Monetary Fund (IMF). So when IMF announced that it would be selling its remaining 191 tonnes of gold in the open market, several bullion analysts predicted that China would somehow jump into the fray and buy IMF gold. Both China and India are competing in the global bullion markets to be the largest consumers and importers of gold.

Despite the gold buying frenzy that China finds itself in these days, the dragon country has not been able to come anyway near the United States in gold reserves. America has the largest gold reserves in the world. The US gold reserves stands today at 8,133.5 tonnes.

But will China be able to beat the US in gold reserves? Though China has been proclaiming that the country will mop up its gold reserves to a whopping 10,000 tonnes in the next 10 years in an apparent suggestion that China wants to overtake America in gold holdings, it is not going to be an easy task. It is, in fact, going to be very tough for China to beat the US in the gold reserves game.

According bullion analyst Ji Zhang, it is going to be a very difficult task for China to overtake the US in gold reserves. “Currently, China’s gold holdings are around 1054 tonnes. In the last 10 years, China has managed to increase its gold reserves only by a little over 550 tonnes. So I find it difficult to understand how China is going to build the so-called massive 10,000 tonnes of gold reserves,” Zhang points out.

He says to overtake the US in gold reserves, China needs to add around 800 tonnes of gold every year for the next 10 years. “It is going to be a very tough task. Going by the present trend of China’s plans of mopping up gold reserves, nothing much has happened in the last six months, except for lots of hype and less reality,” Zhang said.

Zhang is surprised why China has kept mum all these months when it had the best opportunity to buy the IMF gold on sale. “IMF announced one year back that it was selling 403 tonnes of gold. While India showed real, golden valor and business acumen by buying 200 tonnes of gold, China has kept a long silence. It looks China wanted to buy IMF gold cheap, say below $1000 per ounce. But it is unlikely that China will be able to get IMF gold so cheap,” he added.

In the last three decades, China has not been doing much to increase its gold reserves. In 1981, China had 395 tonnes of gold holdings; it increased to 500.8 tonnes in 2001, and 600 tonnes in 2002. In April 2009, China officially announced that it has increased its gold holdings to 1054 tonnes. Since then, it has been reported that Chinese officials and People’s Bank of China have been meticulously chalking out plans to build up gold reserves in the next one decade.

According to the China Gold Association (CGA), India’s decision to buy IMF gold has been the real boost for China’s recent spirited moves to step up gold reserves.

China is eager to build up its yellow metal reserves in view of the declining US dollar value.

Sometime back Ji Xiaonan, head of the supervisory committee at the state-owned Assets Supervision and Administration Commission recommend that China’s gold reserve should reach 6000 tons in 3~5 years, and probably reach as high as 10,000 tons in 8~10 years.

Yes, going by Ji Xiaonan idea, China could beat US in gold reserves in 10 years. But for this, China needs to open up new gold mines, aggressively go for gold mining, buy gold from the open market.

 

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