Last Updated : 12 November 2012 at 13:40 IST
Gold: The next Strategic Commodity?
Source :FT, Forbes
Gold could well become a strategic asset in the coming years; not according some nondescript analyst but as Sun Zhaoxue wants it, the head of China National Gold Corporation
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Imagine the US troops being sent to a remote gold mine in Africa to guard the assets there. Or a gold war breaking out in Africa wherein two or more groups can only talk to each other using bullets just because they cannot see each other when it comes to possessing gold properties.
Replace the words 'gold' and 'Africa' with 'crude oil' and 'Middle East' and the picture becomes clear.
Fast forward in time and you will not have to do this word substitution! Gold could well become a strategic asset in the coming years; not according some nondescript analyst but as Sun Zhaoxue wants it, the head of China National Gold Corporation.
Currently at about 1054 tons, gold just accounts for 1.6% of Chinese $3.2tn foreign exchange reserves. In case of US, the figure stands at 70% of holdings. The US has the biggest economy in the world, followed by China.
“As gold is a currency in nature, no matter if it’s for state economic security or for the acceleration of renminbi internationalisation, increasing the gold reserve should be one of the key strategies of China.” the Financial Times said in a translation of Sun Zhaoxue article.
The article argues that US is trying to create the impression that gold is useless so that dollar retains its value.
“Although the global financial crisis originated in the US, the crisis hasn’t shaken the dominant status of the US dollar in the world and American assets are not shrinking because of dollar depreciation. America’s 8,133 tonnes of gold reserves plays an important role in that.” Zhaoxe article said.
Sun argues that China should view gold as a “strategic resource as important as petroleum energy”
China is also the world's biggest gold producer and has maintained the top spot for five years. China is also on an acquisition spree in gold reserves buying out mines in different parts of the world.
Ralph Benko, in a contribution to Forbes says that:
“The Chinese government has recently removed all restrictions on personal ownership of gold; legalized domestic gold exchange traded funds; is currently purchasing 100% of domestic gold mine production; has imported over 750 tons of gold (27% of global output) in the last 12 months; stated publicly its intention to add 1,000 tons per year to its central bank gold reserves; and is buying major stakes in foreign gold mining companies. The scale of this initiative is extraordinary.”
And, if China starts to buy gold at a scale of 1000 tons per year, gold would fire all booster rockets.
May be that's the reason why China subsequent to its 2009 announcement of gold reserve volumes has not come up with any new announcement.
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