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Closing Gold & Silver Market Report – 2/17/2012

IS CHINA’S CENTRAL BANK BUILDING GOLD RESERVES? 

The first question might be, if the Chinese central bank is increasing Gold reserves, why is this significant? First and foremost, it could have a major effect on Gold prices. The Chinese central bank is the sixth-largest holder of Gold (relative to other central banks), but Gold represents less than 3 percent of its foreign reserve currency. The United States is the largest holder of Gold, but Gold represents nearly 70 percent of its reserve currency. Most Western nations own Gold representing 25 percent or more of their reserve currency. China has stated it intends to get its Gold reserves more in line with that of the West. It will take tons of Gold just to get China to a 10 percent Gold allocation. It will take a significant buying spree to bring it above 25 percent.

Another consideration: What will the Chinese central bank sell in order to purchase more Gold? The answer is fiat currency, and more than likely that will be the U.S. dollar. Not good news for the value of the U.S. dollar, which, by the way, could also drive up Gold prices. This is one reason China will try to be secretive about selling the dollar for Gold. China still will still have a large position in U.S. dollars, so it does not want to drive down the dollar’s value. But China is also buying Gold, so it does not want to push Gold prices up.

Marcus Grubb of the World Gold Council said it is likely that the large increase in Chinese Gold imports during 2011’s fourth quarter was indeed central bank purchases. The Chinese are not forthcoming with this type of information, but World Bank statisticians believe they have spotted a 36-ton discrepancy in reported imports via Hong Kong. They believe this indicates Chinese central bank buying.

In 2011, central banks around the world collectively increased their purchases of Gold by 471 percent over 2010. I will leave it to our readers to determine what conclusions might be drawn from this and whether it is time to look at personal Gold allocations.

Have a great weekend!

At 4 p.m. (CST), the APMEX precious metal prices were:

  • Gold - $1,724.20 – Down $3.20.
  • Silver - $33.34 – Down $0.10.
  • Platinum - $1,636.50 –Up $9.40.
  • Palladium - $686.00 – Down $11.60.

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APMEX’s ‘Market Reports’ provide our readers with a review of spot price activity and some of the factors that may be affecting the market for precious metals, three times during the trading day. While the information is obtained from sources we believe to be reliable, we do not guarantee its accuracy or its completeness and we encourage you to conduct your own investigation prior to making any decision based on the information. The "News and Commentaries" are not intended as a comprehensive discussion and there may be other factors that may be affecting the financial marketplace. These "News and Commentaries" are provided for informational purposes only and do not constitute a recommendation by APMEX to hold, to purchase or to sell any precious metal product. All orders, all purchases and all sales, if any, are subject to the terms of the User Agreement and other applicable policies.

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