Multiple New Sources Reporting China Will Raise Gold Reserves

Several reputable news sources are now covering the breaking story that China will likey raise is gold reserves.

They are talking about adding 4000 tonnes. To put this in perspective, thats about equal to the ENTIRE global demand in a typical year for gold.

The PPT better put their thinking caps on for this one, because if this happens gold could come off the leash.

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China Should Buy Gold for Reserves, Association Says

By Xiao Yu and Ron Harui
More Photos/Details

Nov. 14 (Bloomberg) — China, the second-biggest overseas holder of U.S. Treasuries, should increase its bullion holding to diversify its reserves because the dollar may decline, the country’s gold association said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aO8E.6_D2tVo&refer=home

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China PBOC Mulls Raising Gold Reserve By 4,000 Tons - Report

Wed, Nov 19 2008, 01:51 GMT
http://www.djnewswires.com/eu

China PBOC Mulls Raising Gold Reserve By 4,000 Tons - Report

BEIJING (Dow Jones)–China’s central bank is considering raising its gold reserve by 4,000 metric tons from 600 tons to diversify risks brought by the country’s huge foreign exchange reserves, the Guangzhou Daily reported, citing unnamed industry people in Hong Kong.

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=82afe43d-8d3c-494d-894d-113c196ed750

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Jason Hommel comments about this in his newsletter:

China wants 4000 tonnes of gold, to help “diversify” their $1.9 trillion in U.S. bonds.  It’s quite a joke.  Please bear with me as I explain.

A tonne of gold is 32,151 ounces.  Please search “troy ounces per tonne” at google to confirm, because this one bit of information, and a simple calculator, can help you unlock and decipher the meaning of what you read in the news regarding the gold market, as gold at the national level is usually always quoted in terms of tonnes.

The total ounces China is seeking, is thus: 4000 tonnes x 32,151 ounces/tonne = 128,604,000, or 128.6 million ounces.

That’s an interesting number because it is about half of the U.S. official gold reserves of  261 million ounces.

It’s also an interesting number because the total annual gold market consumption is said to be about 4000 tonnes, while annual mine production is only about 2500 tonnes.

But let’s now multiply by the current gold price, to see how much of China’s reserves could be diversified if they obtained that, without disturbing the price.

At $736/oz., times 128.6 million ounces = $94649.6 million, or $94.6 billion.

That’s funny, because $94.6 billion is not very much of $1.9 trillion, which is $1900 billion.

What’s the percentage?  Simple:  $94.6 / $1900 x 100 = 5%.

See, if China diversified 5% of their reserves, they would dominate the world gold market, buying an equal amount bought by the rest of the world in a year, and that could crash the dollar by 50%, while gold prices could double!

This move doesnt surprise me at all, and it would be a required precursor if China ever wanted to be the worlds reserve currency in my opinion.

How could this affect the price of gold? I wrote an article about this a while ago giving you a few formulas to figure it out on your own.

Own any Gold yet?