China will power gold upward for years, Gartman says


China 'To Boost Gold
for Years to Come'

By Ambrose Evans-Pritchard
The Telegraph, London
Friday, November 10, 2006

Gold surged more than $19 an ounce to $635 in New York trading after China's central bank chief said the country was eyeing "lots of instruments" as alternatives to US dollar reserves. Governor Zhou Xiaochuan said the bank had a "clear" plan to lower the dollar share of its exchange reserves, now $1 trillion and rising fast.

The scale of Chinese holdings means any move would shake up the currency markets, with a leveraged effect on the tiny gold sector. China holds roughly 70 percent of its reserves in dollar instruments such as mortgage bonds.

Dennis Gartman, a gold veteran and publisher of the Gartman Letter, told an RBC conference yesterday that China's moves to diversify reserves would power gold upwards for years to come.

"China holds 1 percent of its reserves in gold, which I expect to rise to 5 or 6 percent over the next 15 years. China will be a quiet, consistent, slow taker of gold," he said.

He predicted Beijing would keep its dollars but use fresh reserves to buy euros and gold.

It is unclear whether the poisonous trade relations between Beijing and the EU could cause China to lose its enthusiasm for the euro.

Anthony Fell, head of RBC Capital Markets, said gold's emerging role as a reserve currency would push the metal above its all-time high of $850 an ounce. "The correction we saw earlier this year is over and gold has embarked on the second stage of its long-term secular rise," he said.

Russia has talked of plans to raise the gold share of its reserves to 10 percent. Although global mine supply will rise over the next couple of years, it will fall sharply from 2010.

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