China "Needs to Buy Gold" as FX Reserves Swell

CHINA'S monetary authorities need to Buy Gold if they are to maintain the balance of Beijing's foreign-exchange reserves portfolio, says a commodity analysis team led by a leading European economist.

Huge foreign-exchange accumulation, created by large trade surpluses, has in the past been "an important factor" in driving China to Buy Gold, says the research department at French bank (and London bullion dealer) Natixis.

Publishing under the direction of Paris professor Patrick Artus, the bank's latest commodity analysis notes a "return to high trade surpluses and FX accumulation in Asia", led by China's rapid swing to an 18-month high trade surplus in July.

"China's [State Administration of Foreign Exchange] will need to increase its gold purchases in order to keep its FX ratio in balance," says Natixis – a view shared by gold analysts at ANZ Commodity Research.

"The bulk of emerging economies are overweight US Dollars and underweight Gold Bullion," says the latest analysis from the Melbourne-headquartered bank. "China is a good example, which could consume the global annual supply of Gold Mining production and still only hold 5% in gold to total foreign reserves."

Moving into late 2010, "The upside surprise may come from central banks Buying Gold," they believe.

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