Monday, November 13, 2006

China's Gold Reserves

China has been rattling its central vault door recently, declaring it will diversify its reserves away from the dollar and towards other currencies and gold. Here's an excerpt from an AFX News Ltd. article on the subject appearing on the forbes.com website:

"China's International Finance News quoted Zhou as saying the country has a very clear plan to diversify its reserves, though he later denied that China has any plans to accelerate this diversification.

"'If assuming China's economy were to remain flat and the one trln usd of reserves were to include five pct gold, then this would require gold reserves worth 50 bln usd. At today's pricing this would mean that over a 15-year period China would need to purchase 1,857 tons of gold, or around 124 tons per year,' Numis said.

"China's gold production has risen rapidly over the past few years and it now ranks in fourth place having produced 224 tons of gold last year, behind South Africa, Australia and the US."

The next question is, does China intend to "purchase" it, or does the government already own most of it outright? My research tends to make me believe that China is truly attempting to attract knowledgeable western companies to their gold production potential. They have opened the doors for exploration, simplified the permit process, and done everything they can to reduce skepticism about their long-term intentions. Australia has been the first to take up the challenge and has already established joint ventures with Chinese partners. Other companies are beginning to follow.

I suppose the remaining hesitancy westerners might feel stems from the fact that we don't know who the next generation of Chinese leaders will be and in what direction they'll steer their politics. In fact, even the Chinese must be asking themselves this question and making rice while the sun shines.

chiangmai ricefield
[Thanks to lostinthailand.com for the photo -- oops, well, it could have been in China.]


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