Gold Surges as Nervous Chinese Begin to Diversiry Dollar Reserves into Gold

By: Mark_OByrne

Gold surged yesterday (up 2.4% and silver was up 2.3%) as stock markets fell sharply with investors increasingly frustrated and nervous with the lack of details about the US government's latest $2,000 billion bank bailout plan.

There is resistance at $930/oz and further consolidation may be necessary at these levels prior to closing above this level but gold is looking very strong both technically and fundamentally. Once the technical level of $930/oz is breached we should move quickly to the psychological level of $1,000/oz once again.

Japanese Bullion Dealers Out of Platinum Bullion as Investors Lose Faith in Government
Platinum surged 3.9% as safe haven investment demand is leading to significant international demand. Japanese bullion dealers have been cleared out of stock of platinum bullion coins and bars as investors buy bullion due to dwindling faith in the government's ability to handle the economic crisis. It had been believed that the Japanese demand for precious metals had been more subdued in recent months compared with the huge demand in the US and EU but this is not the case. The World Gold Council's latest figures suggest that total Japanese gold bullion sales for investment purposes soared by 61 per cent last year.

Chinese Nervous about U.S. to Diversify into Gold with Massive $1.95 Trillion Foreign Reserves
Of even more significance are the drumbeat of Chinese concerns, the U.S.’ largest creditor regarding their massive U.S. Treasury and other debt holdings. Bloomberg reports that influential Yu Yongding, a former adviser to the People’s Bank of China, said that China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies”. Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s massive $1.95 trillion foreign reserves.

Yongding said that “China should diversify its reserves away from U.S. Treasuries if the value of China’s foreign-exchange reserves is in danger of being inflated away by the U.S. government’s pump-priming,” he said. He has previously said that China should diversify into the euro, yen, oil and gold. Yongdinghas has warned of possible panic selling of dollar assets leading to a global financial collapse and has said that the potential increases in the value of gold meant China should be hedging its bets by diversifying into gold.

Dow Jones reported in November that 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, according to a Chinese newspaper.

China has almost certainly been nibbling in the gold market as they attempt to gradually diversify out of dollars and into gold. Especially in light of the fact that they have less than 1% of their currency reserves in gold unlike most western nations whose gold reserves are very significant percentages of their overall reserves. Despite having the largest foreign currency reserves in the world, they are only 9th in terms of central bank gold reserves and this will change in the coming years as they rebalance and diversify their foreign exchange reserves

By Mark O'Byrne, Executive Director

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