The London Bullion Market Association (LBMA) gold conference has begun in Hong Kong and already there have been important stories that have consequences for gold, world currencies, and outside markets.
News that China will inevitably increase central bank purchases of gold for its reserves was highlighted by the LBMA Chairman in Hong Kong. Chairman of the LBMA David Gornall told the conference, “when comparing China to the U.S., it would seem that in China, gold asset allocation can only go in one direction.”
BIG DIFFERENCE
China has only 2% of its reserves in the form of gold compared with the U.S. at 75%. The People’s Bank of China hasn’t disclosed any changes to its gold holdings since 2009, when they said they had risen a whopping 76% to 1,054 metric tons. While the U.S., Germany, Italy, and France, keep more than 70% of reserves in Gold, China’s share is less than 2 percent.
Data from the International Monetary fund show that Brazil, South Korea, and Russia have all added gold reserves this year. Those nations bought 254.2 tons in the first six months and may increase to 500 tons this year. Emerging market economies form the G-20 countries are looking to elevate their gold holdings, Ashish Bhatia, manager of government affairs at the producer funded World Gold council, said in an interview in Hong Kong yesterday.
The Chairman and President of the Shanghai Gold Exchange told the LBMA gathering that the Shanghai Gold Exchange will launch an interbank market early next month that will initially begin with spot contracts and will gradually offer forward contracts.
All banks trading on the China Foreign Exchange and National International Funding Centre will eventually be able to trade in the market, including foreign banks, Wang Zhe, chairman and president of the Shanghai Gold Exchange (SGE).
This move may further enable China to overtake India as the world’s biggest owner of gold.
According to Reuters, reporting from the LBMA, the People’s Bank of China general director, Xie Duo, announced that the central bank has no specific time frame on issuing more gold import licenses to banks, but is keen to further open up the market to the international community.
China’s Agricultural Bank, plans to launch trading of precious metals overseas in the next year or two. China’s Agricultural Bank competes with peers including Industrial and Commercial Bank and China, China Construction Bank, Bank of China and Bank of Communications, among others, in attracting retail investors. The bank sells physical gold and silver, and offers a gold accumulation plan that allows investors to contribute a small amount of money each month and take physical delivery after a period of time.
SOME PERSPECTIVE
I have always been a little reticent when all the news is bullish for a certain commodity sector or a certain stock. Maybe it’s the contrarian in me that sometimes likes to fade the public when I’m putting together a trading strategy.
I can remember all the hubbub about Facebook earlier this year and what a debacle that turned into after they went public. I understand past performance is not indicative of future results, but with U.S. lawmakers and the President in gridlock over the fiscal cliff with no resolution in sight, I think that gold will be one of the choices of investment for investors going forward.
Along with the aforementioned increase in appetite from possibly China and other G20 nations, if we see a dip in gold down to the $1700 level or if the price dips to challenge the monthly low at $1673, I think it will represent a buying opportunity for investors as we head into 2013. Contact me at any time for trading ideas and conservative strategies regarding gold as we enter into 2013.
RISK DISCLAIMER: There is a significant risk of loss in trading commodities. Past performance is not necessarily indicative of future results. Only risk capital should be used. Losses from commodity investments may be greater than the initial investment(s). Commodity trading is not appropriate for all investors, and a commodity investment must be evaluated in light of the potential for risk of loss as well as the possibility of profit. Please contact your account representative for more information on these risks
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