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David Morgan: The silver ETF, past and future
Some See Gold in China's Reserves
Metal Gets a Boost
From Talk of Switch
Out of U.S. Dollars
By James T. Areddy
The Wall Street Journal
Wednesday, May 10, 2006
http://online.wsj.com/article/SB114726053926948792.html?
mod=googlenews_wsj
SHANGHAI, China -- China is again underpinning commodity prices --
this time with bullish comments about gold.
The People's Bank of China, the country's central bank, has long been
coy about its management of gold reserves. But in recent days,
comments attributed to a part-time Chinese economist that a weakening
U.S. dollar should prompt Beijing to hold more gold helped send the
price of the metal to levels not seen in more than 25 years.
Unlike metals used for industrial purposes, gold historically is
owned as an investment hedge against inflation -- or as an
alternative to currencies like the U.S. dollar. Beijing is
particularly exposed to weakness in the U.S. currency since much of
its $875 billion in foreign-currency reserves is believed to be held
in U.S. dollar-denominated assets.
"This is a fact in front of everybody," said Liu Shanen, the 61-year-
old part-time economist at the Beijing Gold Economy Development
Research Center, a government organization closely affiliated with
state-owned mining groups. Some traders say his comments helped spark
the latest jump in gold.
In global trading Tuesday, gold hit its highest level since 1980. On
the Comex division of the New York Mercantile Exchange, the most-
active June contract broke $700, rising $21.60 an ounce to $701.50,
just off the day's high of $702.20. In Comex trading Wednesday, June
gold settled $4.20 higher at $705.70 an ounce.
Some traders seized on comments by Mr. Liu that China's government
should quadruple its holdings of gold as a reason to buy the metal,
though concerns about high crude-oil prices, global inflation, a
weakening U.S. dollar and a standoff over Iran's nuclear program were
more oft-cited reasons for the price move.
The comments also emerged as China's Ministry of Land and Resources
said this week that it would build strategic reserves of some
minerals in the next several years, though gold wasn't mentioned. As
China has emerged as one of the world's biggest buyers of
commodities, traders are eager to factor its policies into market
prices.
In recent years, China's bulging foreign-exchange reserves have
prompted a number of economists to suggest that the investment could
be diversified into other currencies and into gold.
Mr. Liu, who said in an interview he is officially retired, called
the market response to any sign of increased demand from China
an "excuse" by traders to bid up the price. He noted he has long
promoted the attributes of gold and said he has no knowledge about
the central bank's actual policy, which is a closely guarded state
secret.
A report published Tuesday by China Gold News quoted Mr. Liu from a
speech he made to an industry conference late last month, where he
said the government should raise its holding of gold to 2,500 metric
tons from 600 tons now. The report quoted Mr. Liu saying China holds
less gold than other countries, only about 1.3% of its foreign-
exchange reserves, compared with 3% to 5% of reserves in other,
unspecified countries.
Similar statistics were cited in a commentary carried in a state
newspaper late last year written by Teng Tai, chief economist of
Chinese brokerage house Galaxy Securities Co.
"Over the longer term, the yellow metal is a rare commodity, and its
price tends to rise further," said Qin Weihuan, an analyst with
Beijing Gold Economic Research Center, which publishes Gold News.
The People's Bank of China, which manages the country's foreign-
exchange reserves, says gold holdings haven't been adjusted since
December 2002 and now stand at 19.29 million troy ounces, or 600
metric tons. It doesn't put a dollar value on the reserves. A central-
bank spokesman couldn't be reached to comment on gold reserves. ...
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