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China: 10,000 Tonnes of Gold

Top Chinese "task force" says it should buy 10,000 tonnes of Gold Bullion...

ONCE AGAIN China is making news on the hottest commodity – gold, writes David Lew, Bullion commentator with Commodity Online in Mumbai.

China, the largest producer and private consumer of gold in 2009, has announced that it wants to build up its Gold Bullion reserves. And by how much? Ji Xiaonan, who chairs the supervisory board for the Chinese State Council's biggest state-owned companies, said Monday the country should look to add a massive 10,000 tonnes in the next 10 years.

Is China going crazy after gold? It would seem so if the recent statements coming out Chinese government officials is any indication. In fact, its Bullion reserves began to make big news in April this year when China announced that the country had increased its gold holdings to 1054 tonnes from 454 tonnes in 2003.

Since then, many other fast-rising nations – India, Russia, Brazil, even Sri Lanka – have been making news by announcing that they all want to build more gold reserves.

The Dollar's ongoing decline, plus ongoing economic recession and stock market fluctuations around the world are the main reasons for these central banks to mull mopping up fresh Gold Bullion reserves. India's Reserve Bank surprised most other central banks last month by buying 200 tonnes of gold from the International Monetary Fund (IMF). India is these days once again in the fray to buy additional gold reserves from the IMF.

Why is there a scramble for gold reserves by countries like China, India and Russia? Every country these days wants to diversify its foreign exchange reserves by acquiring gold and other hard assets in place of the US Dollar, which has been dropping in value since rallying hard last year.

On Monday, the China Youth Daily quoted State Council advisor Ji as saying that a team of experts from Beijing and Shanghai have set up a "task force" last year to consider growing China's gold reserves.

"We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him.

Golden ambition, indeed! But considering the fact that China has now 1054 tonnes of gold, taking the yellow metal reserves to 10,000 tonnes in the next 10 years is going to be a challenging task. It also means overtaking America's dominance of global central bank reserves.

Bullion analyst Mark Robinson says this is the biggest and most ambitious task that China has ever announced.

"If China wants to take its gold reserves to 10,000 tonnes in 10 years, the country needs to buy or acquire the yellow metal to the quantity of nearly 1000 tonnes per year."

Robinson says China might now go aggressive on Gold Mining production, as the country has allocated big funds to finding new gold resources.

"China wants to emerge as the global leader in gold reserves. Given the aggressive play that China is showing on gold, it looks perhaps possible that China will emerge as the biggest holder of gold in the world in the next 10 years," adds Robinson.

Which countries own the largest quantity of gold reserves right now?

  • World leader the United States has 8133 tonnes of gold reserves, accounting for 76.5% of its foreign exchange reserves;
  • Germany has the second highest gold reserves at 3412.6 tonnes;
  • France has 2508 tonnes of gold constituting 58.7% of its forex assets;
  • Italy has 2451.8 tonnes of gold constituting 61.9% of forex reserves;
  • China became the fifth biggest holder of gold reserves this April with 1054 tonnes;
  • Switzerland has 1040 tonnes of gold reserves constituting 23.8% of total forex reserves;
  • India which recently bought 200 tonnes of gold from IMF has 557 tonnes of gold reserves representing 3% of total forex reseres.
  • The IMF, which currently holds 3,217 tonnes of gold, is the third-largest official holder of the precious metal, but is not technically a sovereign central bank. The IMF has made gold sales a key element of its new income model aimed at lowering its dependence on lending revenue to cover expenses.

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