China''s gold reserves double in value while Britain''s are sold cheap

Section:

By Atul Prakash
Reuters
Friday, March 24, 2006

http://today.reuters.com/news/newsArticle.aspx?
type=reutersEdge&storyID=2006-03-24T180845Z_01_L23418455_RTRUKOC_0_US-
MARKETS-GOLD.xml&src=cms

LONDON -- The dollar's faded influence over gold prices is unlikely
to be restored as investors react more to economic growth trends,
inflation worries and global political scares, analysts said on
Friday.

For years gold was seen as a haven for investors in periods of U.S.
currency weakness, with falls in the greenback making dollar-
denominated bullion cheaper for other currency holders. Equally, gold
prices have tended to fall on dollar strength.

"In today's world, the traditional link with the dollar has broken,"
said Peter Hillyard, head of metals sales at ANZ Investment Bank.

Tools such as exchange-traded gold funds had provided new investment
opportunities, allowing investors to enter the bullion market without
taking physical delivery of metal, analysts said.

Such funds now held about 475 tonnes, equivalent to the 11th largest
gold holding by a central bank.

"People have realized that the dollar is important for gold but it's
not the only factor and you cannot slavishly trade gold just simply
because of what's happening to the dollar," said John Reade, analyst
at UBS Investment Bank.

As the dollar rose by about 4.5 percent against the euro in the five
months to early February, gold gained 30 percent to hit a 25-year
high of $575 an ounce, the highest since January 1981.

It was quoted on Friday at around $560, more than double the level
seen five years ago.

"The weaker (gold-dollar) correlation late last year and early this
year was due to the overwhelming enthusiasm among the speculative
community to drive prices higher," said Yingxi Yu, analyst at
Barclays Capital.

Analysts said investors are now better informed and had sophisticated
technical tools to analyze the market.

Price moves in precious and base metals were more closely linked than
in the past as funds looked at them as a basket.

This year platinum, copper and zinc had soared to record highs, while
silver and aluminum had hit 22-year and 17-year peaks, they noted.

And such price gains had been attracting fresh money and more players.

Gold also had support from good physical demand.

"Gold in its insurance role in a portfolio attracts ample interest,"
said Frederic Panizzutti, analyst at MKS Finance.

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