Gold shines on UAE's plan to switch out of dollars


By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, July 4, 2006

Gold has surged to a six-week high of $625 an ounce after the United Arab Emirates revealed plans to invest 10 percent of its foreign reserves in bullion, suggesting a strategic shift away from dollars by the oil-rich sheikdoms of the Gulf.

The governor of the central bank, Sultan bin Nasser al-Suwaidi, said the UAE would switch into gold gradually.

"I don't think it is appropriate to buy gold now. It is too expensive. The appropriate time might come very soon. We could go up to 10 percent," he told the AME Info financial service in Dubai.

"When there is a clear trend going up, you move into it. If it is going down, you wait for the bottom and buy. There is no trend at this point," he said.

The Russian central bank has a similar strategy of raising reserves to 10 percent, buying the dips each time gold falls back from a speculative surge -- a policy that quickly puts a floor under each correction.

Gold reached $730 an ounce in early May before crashing 24 percent in the sharpest drop since the bull market began in 2001. The metal has since shown extraordinary resilience, regaining half the ground lost.

The UAE's foreign reserves are a modest $23 billion, but the federation of states also disposes of vast investment wealth through oil trusts.

The Abu Dhabi petroleum fund is thought to be worth at least $450 billion. The fund never discloses its investments and moves quietly through foreign banks, but veteran gold watchers suspect that it is also diversifying into precious metals.

Separately, an official from China's Banking Regulatory Commission said Beijing should raise its gold holding from 1.3 percent to between 3 and 5 percent of the country's exploding foreign reserves, now nearing $900 billion.

The official also stressed the need to ease in gradually, buying when the price was right.