What Germany and China Really Think About Gold
Source: Eric McWhinnie, Wall St. Cheat Sheet (11/11/11)
"The loyalty of the Germans and Chinese to maintain and add gold holdings is a perfect example of a safe haven asset."
After an interest rate cut from the ECB last week, and alarming government bond rates in Portugal and Italy, there is no way Germany is going to pledge its gold as a euro solution. There was speculation over the weekend at the G20 summit that German gold may be sold in order to boost the European bailout fund. However, the Bundesbank and Mr. Seibert, spokesman for Merkel, ruled out the idea of Germany parting ways with their gold reserves. Mr. Seibert explained, "Germany's gold and foreign exchange reserves, administered by the Bundesbank, were not at any point up for discussion at the G20 summit Cannes."
Late Monday, it was revealed that China (NYSE:FXI) is continuing to purchase gold. Financial Times reports, "Chinese gold imports from Hong Kong, a proxy for the country's overall overseas buying, leapt to a record high in September, when monthly purchases matched almost half that for the whole of 2010. Data from the Hong Kong government showed that China imported a record 56.9 tons in September, a six-fold increase from 2010. China appears to be employing the textbook Warren Buffett (NYSE:BRK.A) strategy, "be greedy when others are fearful." By the end of September, gold prices fell more than 15% after reaching $1,900 an ounce early in the month. "In September, we saw some bargain hunters come back into the market on the price dip," said Janet Kong, managing director of research for CICC, the Chinese investment bank.
The loyalty of the Germans and Chinese to maintain and add gold holdings is a perfect example of a safe haven asset. Despite market volatility and headline driven fears, precious metal investors continue to rely on the long-term stability of gold and silver.
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