Commodity Online
BEIJING: If the advice from the leading industrialists in China, gold prices will further go up soon. According to news reports, a number of industrialists told China that the country should further increase its gold reserves to diversify reserve assets.
China should boost its gold reserves, said Zhang Bingnan, vice-chairman and general secretary of the China Gold Association. An increase in holdings from both government and individuals are needed.
In May, China said it had increased its gold reserves by 454 tonnes to 1,054 tonnes, the first such disclosure in six years.
China is the world’s fifth-biggest gold holder, following the United States, Germany, France and Italy.
Nonetheless, China’s gold stockpile amounts to less than 2 per cent of its total foreign reserves based on the metal’s price of $930 an ounce.
Zhang said China’s gold sales were expected to rise this year, but he declined to give a figure.
Here is what the Fortis Metals Monthly recently said about the need for China to mop up its gold reserves:
"China would need to acquire nearly seven times more gold than it has currently, about 7,500t. To match the world average in terms of grammes per capita, it would need just under six times as much, at about 6,000t. To match the global average of gold as a share of GDP it would need a smaller amount, about 2,100t to 2,400t.
It is not obvious which of these measures is most useful. To judge China’s gold holdings in terms of a percentage of foreign reserves it may not be that China has too little gold, but that it has too much forex. The per capita measurement does not take into account how rich a country is.
The measure that considers gold as a percentage of GDP would make more sense if one sees gold as apart from foreign exchange reserves, there as a store of value, war chest and for use in national emergencies, rather than for more frequent events such as currency market intervention or the purchase of imports.
Yet even if we did accept this it still begs the question of whether the world average is correct. After all, countries have been net sellers of gold in most years since the mid-1960s, and although it does look as if sales are slowing, it is still too soon to say that trend is over; on any of these measures the US and Europe still have rather more gold than seems appropriate. The stockpiling of gold by national treasuries rather goes against the privatising instinct of much of the world since the late 1970s.
One guide, perhaps, is the percentage share of the entire world’s gold that is owned by central banks. This has been in decline since the mid-1960s, not just because of the general trend towards offloading bullion reserves, but because gold mine production has continued and indeed accelerated. By now, less than 20% of the world's gold is held by official institutions, a remarkable figure but down sharply from its heyday, when more than half was in state hands.
However, it might also understate the official sector's importance, as a fair chunk of the privately-held gold is held in forms rather a long way from financial assets, such as in electronics, or Western high mark-up jewellery. If one looks at US Treasury debt, then about 30% of that is held by foreign governments, a not dissimilar share to the proportion of investment or nearinvestment gold held by central banks."
