The Klondike gold rush may be on again

Section:

Beijing Whispers Push Gold to $700

By Ambrose Evans-Pritchard
The Telegraph, London
Wednesday, May 10, 2006

http://www.telegraph.co.uk/money/main.jhtml?
xml=/money/2006/05/10/cngold10.xml&menuId=242&sSheet=/money/2006/05/1
0/ixcitytop.html

Gold has surged to $700 an ounce for the first time in 26 years
after Chinese economists suggested the country should quadruple its
bullion reserves to protect against a falling dollar.

Speculators have been alert to any sign that Beijing may be planning
to switch a portion of its massive $875bn reserves into gold, a move
that would electrify the market.

They seized on comments yesterday by Liu Shanen, an official at the
Beijing Gold Economy Development Research Centre, who said China
should raise the portion of gold in its reserves from 1.3 percent
today to between 3 and 5 percent. Such a move would entail the
purchase of 1,900 tonnes of gold, equivalent to gobbling up nine
months of global mine production.

Washington's cold response to Iran's move to defuse nuclear tension
also helped fuel yesterday's rally. "No one is buying Iran's
overtures," said Frank McGhee, a metals trader at Integrated
Brokerage Services. "This is a purely geo-political move for gold.
We've been here before. The difference is that this time, there are
nukes involved."

June gold futures jumped $20.10 an ounce in New York, briefly
touching the $700 line before falling back slightly.

Tan Yaling, an economist at the Bank of China, backed the call for
higher gold reserves to "help the government prevent risks and
handle emergencies in case of future possible turbulence in the
international political and economic situation".

John Reade, a UBS analyst, said neither economist had any official
role but hints were enough to drive prices in the current
climate. "This is an investor frenzy, and China has become the
biggest rumour in the gold world right now," he said.

Mr Reade said gold had changed stride since the middle of last year,
the key moment when it broke out against all major currencies and
began to attract investment from the big money brigade.

"Speculative and investment interest has replaced jewellery demand.
The last time that happened was in 1979 to 1980," he said.

He said it was likely that Middle Eastern investors were switching
petrodollars into gold after burning their fingers in local stock
markets.

Ross Norman, director of the BullionDesk.com, said China may already
be a silent buyer on the open market.

Central banks are supposed to record their gold purchases with the
IMF promptly, but they have been known to move stealthily for months
before declaring.

"This market has been bouncing back so quickly after each bout of
profit-taking that it looks as if somebody big is trying to get in.
It's too darn hot for my liking," Norman said.

Mr Norman said there was a fair chance that gold mining equities
would start to play "catch-up."

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