A Case Emerging for Central Banks Buying Gold
Source: Thomas Kelly, Seeking Alpha (12/3/07)
A move to increase gold holdings by China appears to be a question of when rather than if...When China starts buying, gold will begin the next leg up in its bull run.
...I will particularly point out the rather small levels of gold held in China and Russia. Current account surpluses in these countries are booming (at about $325 billion in the last 12 months according to The Economist), and if these countries want to continue sterilizing money (not converting it back into local currency in order to prevent a rapid currency appreciation), they have few choices in which to hold foreign reserves (mainly the dollar, euro, to a lesser extent the pound, and then gold). Obviously gold as an asset class is massively underowned by both central banks, and Russia has already been increasing its gold holdings for the last year. A move to increase gold holdings by China appears to be a question of when rather than if, because at the rate with which they are piling up forex reserves, the weighting of gold in China’s reserve portfolio is actually decreasing. When China starts buying, gold will begin the next leg up in its bull run.