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Adding gold will help internationalize yuan, PBOC adviser writes

Section: Daily Dispatches

China Should Consider Increasing Gold Reserves to Boost Trade in the Yuan

From Bloomberg News
Friday, December 3, 2010

China should consider adding to its gold reserves as a long-term strategy to pave the way for the yuan's internationalization, central bank adviser Xia Bin wrote in the China Business News today.

The country must revise its foreign-reserves management principle, Xia wrote. China is the world's largest producer and second-biggest user of gold and has a world-record $2.65 trillion in foreign-exchange reserves.

Gold is set for a 10th annual increase, the longest winning streak since at least 1920, spurring central banks globally to add the metal to reserves. China is allowing greater use of its currency for cross-border transactions to reduce reliance on the dollar, after Premier Wen Jiabao said in March he is "worried" about holdings of assets denominated in the greenback.

"If China increases gold buying significantly to diversify its foreign exchange reserves, that could affect the market," said Park Jong Beom, a trader at Tong Yang Futures Trading Co. in Seoul.

Gold for immediate delivery increased 0.4 percent to $1,390.32 an ounce at 12:49 p.m. in Shanghai, boosting this week's gain to 2 percent, as China's imports increased and a fall in the dollar boosted the appeal of the precious metal as an alternative asset.

Imports of gold by China jumped almost fivefold in the first 10 months from the entire amount shipped in last year, the Shanghai Gold Exchange said yesterday. Shipments were 209 metric tons compared with 45 tons for all of 2009, said exchange Chairman Shen Xiangrong.

... Dispatch continues below ...


Prophecy Receives Permit To Mine at Ulaan Ovoo in Mongolia

VANCOUVER, British Columbia -- Prophecy Resource Corp. (TSX-V:PCY, OTCQX: PRPCF, Frankfurt: 1P2) announces that on November 9, 2010, it received the final permit to commence mining operations at its Ulaan Ovoo coal project in Mongolia. Prophecy is one of few international mining companies to achieve such a milestone. The mine is production-ready, with a mine opening ceremony scheduled for November 20.

Prophecy CEO John Lee said: "I thank the government of Mongolia for the expeditious way this permit was issued. The opening of Ulaan Ovoo is a testament to the industrious and skilled workforce in Mongolia. Prophecy directly and indirectly (through Leighton Asia) employs more than 65 competent Mongolian nationals and four expatriots. The company also reaffirms its commitment to deliver coal to the local Edernet and Darkhan power plants in Mongolia."

The Ulaan Ovoo open pit mine is 10 kilometers from the Russian border and within 120km of the Nauski TransSiberian railway station, enabling transportation of coal to Russia and its eastern seaports. Thermal coal prices are trading at two-year highs at Russian seaports due to strong demand from Asian economies.

For the complete press release, please visit:

"In the mid and longer term, of course, I think China is the biggest bullish factor for gold prices," Yuichi Ikemizu, head of commodity trading at Standard Bank Plc in Tokyo, said, referring to the gold imports by China. Still, "the advisers are not the guys to decide policies of the central bank. They can advise whatever they want and the percentage of gold in foreign reserves is really small."

The country increased gold reserves by 454 tons to 1,054 tons since 2003, the State Administration of Foreign Exchange said last April. The metal accounts for only 1.6 percent of the nation's reserves held by the People's Bank of China, according to the World Gold Council. China doesn't regularly publish gold trade figures and rarely comments on its reserves.

Bangladesh bought 10 metric tons of bullion from the International Monetary Fund for about $403 million in September. That followed a 200-ton purchase by India last year, as well as reserve increases by other Asian nations including Sri Lanka.

Building gold as the basis of solvency has been used through history, PBOC adviser Xia wrote. Having a corresponding amount of solvency is a necessary precondition and indispensible safeguard in the long-term strategy for the internationalization of the yuan, Xia wrote.

China also needs to set up a commission soon under the State Council to make plans for investing its foreign reserves overseas, Xia wrote. The investments should include oil, resources, equipment and technology, Xia said.

The non-convertibility of the yuan is a major hurdle in China's efforts to become a "real financial power," Bank of China Ltd. Chairman Xiao Gang wrote in a commentary published in today's China Daily.

The Chinese currency will become an international monetary unit like the Euro or the dollar only once it can be freely converted into foreign currencies, Xiao wrote.

Trade transactions settled in the yuan may rise to $3 trillion a year by 2015 as China pushes for the wider use of its currency as an alternative to the dollar in business and finance, China Construction Bank Corp. said Nov. 23.

China Construction Bank, which helped organize the biggest number of bond sales in China this year, forecasts an increase from the current $19 billion a year of yuan-denominated trade transactions, or commercial deals primarily paid for and financed using the yuan that don’t involve the dollar.

China should raise its gold holdings and the 1,054 tons of reserves are inadequate compared with the 8,133 tons held by the U.S. and 3,408 tons by Germany, Meng Qingfa, a researcher at the China Chamber of International Commerce said on Oct. 27.

"China does not hold much gold in its reserves for now so I cannot immediately see what impact it will have on gold prices," Tong Yang Futures' Park said.

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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface. "The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit: