AZK/MNG/
CMM.V / IPT.V / MUG.V
Date: March 01, 2006
China Leads From The Front By Doubling Its Gold Reserves This Year
Interesting to read that the National Development and Reform Commission has stated that China intends to more than double its gold reserves to 1,270 tonnes this year.
According to figures released recently by the World Gold Council on official gold holdings this will put it on a par with Switzerland in 6th position.
In 2005 China increased its gold reserves by 20 per cent to 620 tonnes and now it is going to add a further 650 tonnes. Down at the bottom of the list, or very close to it, is the poor old UK with a paltry 311.2 tonnes thanks to the devious machinations of Chancellor Brown.
On one side is Venezuela and just below is Belgium – not the usual place for a once proud empire. And what about Australia, Canada and South Africa, the three countries which traditionally prided themselves on their mining. None of them feature in the Top Twenty gold holders.
China still has some way to go to catch up with the US which is said to have 8,133.5 tonnes of gold stored in Fort Knox.
The word ‘said’ is introduced deliberately as the gold depository at Fort Knox is a classified facility. No visitors are permitted, and no exceptions are made.
Back in the 1970s a man named Edward Durrell claimed that substantially all of the US Gold Reserve being stored at Fort Knox had gone.
A modest amount remained, but the rest had been shipped to London in 1967 and early 1968 for sale by President Johnson in an ill-fated attempt to keep the price of gold at US$35 per ounce.
Since then there have been variations on this story and the sad thing now is that the US government retains so little credibility that no one knows what to believe.
The decision by China to boost its gold assets is another move in the geopolitical axis from west to east and, as chairman Mao once said, the longest journey starts with a single step.
China has now taken two steps and it is clearly taking the whole gold thing very seriously.
The National Development and Reform Commission is also expected to release a new gold industry policy and development plan shortly which will include limiting foreign gold mine ownership to less than 50 per cent. This won’t necessarily make life easier for western companies exploring for gold in China as it sends a clear signal that gold is seen by the Chinese government as a strategic asset.
Only yesterday a Canadian company called Sparton Resources reported that it had signed a letter of agreement with the Zhao Jin Mining Industry in Shandon Province which is the largest integrated gold producer in China.
Sparton has agreed to sell a 41 per cent interest in the Luxi gold project in Yunnan Province to Zhao Jin and, at the same time, Yunnan Nuclear Geological Exploration Brigade 201, which is Sparton’s partner at Luxi, has agreed to sell half its holding.
The result will be that Sparton retains a 39 per cent interest, its partner 10 per cent and Zhao Jin will have control with a 51 per cent stake. Sparton is being paid in Renminbi equal to around C$2.8 million. This may set a precedent and it is certainly a much better one than that set in Russia when the holding of Celtic Resources in the Nezhdaninskoye gold deposit in Siberia was hijacked by Polyus.
Where China leads, as far as gold reserves are concerned, others will surely follow.
The price of gold has doubled since Brown completed his gold sale in 2001, but despite the view promulgated by CPM Group of New York which expected higher sales of gold by central banks and no support buying from Asian countries this year, few would bet against China.
The current gold holding of Taiwan is 423.3 tonnes which puts it in 12th place in the Top Twenty ahead of Russia and India.
Taiwan, however, has a population of only 22.9 million people and the gross domestic product per head is reckoned to be US$26,700.
Compare that with China with its population of 1.3 billion people and a GDP per head of only US$6,200 and some idea appears of the demand/supply gap that could appear if China goes on buying gold at its present rate.
Add to this the fact that China is stuffed to the gills with US dollars and needs to diversify its holdings and the attraction of gold becomes ever more clear. What central bank wants to court unpopularity by selling gold at a time when it is being clearly re-rated?
The 2005 figures, compiled independently for the World Gold Council by GFMS, show that China is not alone with its appetite for gold.
The fourth quarter of the year, in particular, saw substantial inflows of institutional investment into gold.
Investment in Exchange Traded Funds increased by 79 tonnes during that quarter alone and it is estimated that other institutional investment in the period approached 200 tonnes. Agreed this level of investment by institutions, which include hedge funds,will introduce an added degree of volatility into the gold price, but with China and a few other countries in the East steadily buying into any weakness, the outlook is set fair.
Any forays by Bush into the Middle East or , indeed, South America where some of his neighbours are getting a bit naughty, will only add to the attractions of gold as a store of value.
Companies featured in this Story
minesite.com |
