‘China to emerge as top gold holder in 10 years’
Published on Thursday, March 18th, 2010 at 7:23 PMAuthor: onlinecommoditycalls (1958 Articles)
China made headlines last week after Yi Gang, director of China’s State Administration of Foreign Exchange, said that using gold to diversify its foreign-exchange reserves is limited because of the metal’s poor returns over the past 30 years. The comments suggested that China’s gold purchases overall will be limited for now.
James DiGeorgia, editor of the Gold and Energy Advisor and author of several books on gold, has described China’s announcement as “absurd” and contends that gold will continue to be snapped up.
What’s your take on this announcement by the Chinese government?
DiGeorgia: It’s nonsense. The announcement was not an announcement it was a statement by one Chinese official. The reality is China has been buying enormous amounts of gold the past several years as a hedge against its almost trillion U.S. Dollar reserves. The Chinese are starting to cut their U.S. Dollar reserves, in February down by 5%.
The Chinese don’t want to keep adding US Dollars and Euros and any statement is nothing more than a fake out intended to drive the price of gold lower for the purposes of adding reserves at the best possible prices.
How large are China’s gold reserves?
DiGeorgia: China’s gold reserve ranks fifth in the world and amount to 1,054 tons. Amazingly China is now the largest gold producer in the world, with a more than 300 tons of gold produced annually. China is also the world’s second largest gold consumer, with a consumption of over 400 tons of gold each year, second only to India.
Besides the government’s state owned gold reserves, it is conservatively estimated that there are far more than 3,000 tons of gold accumulated among Chinese people.
How do gold holdings in the U.S. compare with China’s?
DiGeorgia: The United States has the largest gold reserves in the world some 8,133.5 tons – more than seven times greater than China. Given the rapidly expanding debt in the United States, the fact that the United States estimated to exceed $23 trillion by 2020, as much as $112 trillion if you include unfunded entitlement programs the amount of gold versus the debt explosion can be compared very favorably for China. A creditor nation with a large gold reserve versus a debtor nation that has 7 times more gold only shows just how perilous the economic balance is and how much in favor the balance is in China’s favor.
If China does keep purchasing gold, will it focus more on what it produces domestically?
DiGeorgia: China consumes 100 million more tones of gold than it produces and because of its 9% annual growth is importing foreign reserves at a break neck pace. Anyone believing the Chinese will not be buying gold with the increasingly depressed U.S. Dollars and Euros is dreaming.
China will become one of the top two holders of gold in the next 10 years and be positioned as the second most powerful if not the most powerful economy in the world.
What does all this mean for investors?
DiGeorgia: We’re in the early stages of an economic power shift much like the one that occurred when the Soviet Union collapsed. How much are Soviet Rubles worth? Zero. Nada. At some point unless drastic cuts are made in federal spending, we will see the third great devaluation of the U.S. Dollar in the past 100 years.
The first coming in 1933 when gold was recalled and U.S. Gold Notes were no longer exchangeable for gold. In today’s terms that amounts to at least a 45% devaluation. Then in 1964, U.S. Silver Certificates were emasculated and could no longer be exchanged for silver. That devaluation now amounts to a 1/13 devaluation of the U.S. dollar.
“Investors that are not holding 15% of their savings in gold are at tremendous risk. Gold should be part of every investor’s portfolio as a last line of defense as protection against the greed, stupidity and mismanagement of our politicians on both the state and federal level.”
Courtesy: www.examiner.com
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