Cazenove star analyst says China to raise gold reserves five-fold and boost gold pricePosted on 09 February 2011 with 1 comment from readers
Gold and silver prices were advancing this morning in anticipation of a return from the Chinese New Year holiday, while Cazenove star analyst Robin Griffiths gave the Year of the Rabbit a poke with a prediction that China is looking to increase its gold holdings from two to 10 per cent of national reserves.
Extrapolated into the market that would mean China buying around 5,000 tons of gold, according to King World News. Mr Griffiths told the channel: ‘I think we’re moving into a world where Chinese and Indian authorities are going to be more dominant than they were in the past, and in their culture of course gold is real money. On top of that, particularly China already has more than enough dollars, it’s finding that a problem. It doesn’t want to crack the dollar, but it doesn’t want to go long of any more because of its trading activities.
‘For as long as interest rates are super low, there’s no negative cost of holding gold. There is a seasonality to gold and very often it doesn’t start running until the end of February…Once we get into March, I think we can expect it to start motoring higher again.’
Good track record
ArabianMoney remembers meeting Mr Griffiths in Dubai five years ago and he has been right on gold since then. Even at that time there were those who argued the gold bull run was over! It has continued to advance at a steady pace since then.
Indeed, Mr Griffiths notes that this is a very strong trend that will either continue or go parabolic. For a parabolic spike upwards is the usual end to a bull market. Silver will almost certainly go the same way, and has been showing more of a spike shape in recent months.
However, the Chinese are canny buyers and no doubt recognize this problem. Shifting gradually from dollars to precious metals makes a great deal of sense, if you are in favor of the gold-backed IMF super currency that the Chinese central bank has previously proposed.
And surely this buying will take gold and silver higher, unless something happens to suddenly cause a big sell-off in precious metals in China. That something could well be a property crash leading to the forced liquidation of precious metal portfolios.
Some analysts like Dr Marc Faber agree with China bears like hedge fund manager Jim Chanos but wonder about the timing of a real estate crash. If it comes sooner rather than later – and interest rates went up again yesterday – then gold and silver prices will suffer. If it comes later then so much wealth will already have been transfered into precious metals that any fall in their price will be from a much higher level.
So always a bear in the mix to challenge what otherwise looks an easy investment decision. Mr Griffiths reckons holding dollars is close to insanity (click here). Meanwhile, the ArabianMoney investment newsletter examines the best ways to invest in silver this month (sign-up here).