China may spur gold price further

I-Net Bridge | Tue, 17 Nov 2009 12:40
[miningmx.com] -- THE gold bull market could set to continue were China to increase its gold holding to just 5% from 1.8% of total reserves, said independent precious metals analyst, David Levenstein in an interview.

This comes after India recently increased its holdings to 6% when it purchased 200 tonnes from the International Monetary Fund (IMF) and the gold price surged to new records.

Comex near-dated gold futures closed at $1,138.60 an ounce on Monday, a new record. A break past the $1,000 mark has been sustained since October 1 on a closing price basis.

After India snapped up 200 tonnes of the yellow metal from the IMF, rumours began to fly around in the market that perhaps China would be the next buyer.

"China is now the largest producer and consumer of gold in the world. Yet despite the fact that they have some $2.3 trillion in reserves, only a very small portion (1.9%) is held in gold," independent precious metals analyst, David Levenstein, told I-Net Bridge.

Since 2001 the gold price is now up almost 450%, said Levenstein. In the last year twelve months it is up 57%, and this year it is up more than 25%, he said.

"Central banks have become buyers and not sellers, demand is outstripping supplies, the dollar continues to lose value, and China is emerging as a major gold player. If you still can't see what is happening, then I give up."

"But, we have to wait and see about China," said Levenstein.

SA gold reserves low

The startling observation was made on Monday that South Africa's gold reserves at 2,948 tonnes are less than half of the current United States Geological Survey (USGS) estimate of 6,000 tonnes. The research comes from Umvoto Africa research and technical director Chris Hartnady.

This means the country is not first, but fourth in world rankings, after Australia (5,000 tonnes), Peru (3,500 tonnes) and Russia (3,000 tonnes).

Hartnady said the USGS currently cites South Africa's gold reserves at around 6,000 tonnes, while official SA figures claim a 36,000 tonnes reservenbase figure, or about 40% of the global total.

Releasing a paper published in the South African Journal of Science in September/October, Hartnady said this 36,000 tonnes reserve figure has been unchanged since 2001.

It is unfortunate, but it looks increasingly likely that South Africa's economy will not benefit as strongly as it once did from these big plays in the global market, as the country's supply is fast dwindling.

With the unemployment rate at 24.5% and 770,000 jobs lost in the third quarter, the power crisis weighing on industry last year and higher power costs to weigh for some time, the problems mount. Mining and quarrying now only makes up 4.6% of total output in a 2.3 trillion rand economy. South Africa lost its mantle as the largest gold producer in the world to China in 2007.

If you still can't see what is happening, then I give up

No doubt, the trade unions should be losing grip on the economic centre stage too as manufacturing now also plays less of a role at 14.5% of domestic output.

For political reasons, though, they have been allowed to get highly vociferous of late. It could be a sign of desperation on their part too as they know about the reality on the ground and how little muscle they hold in reality when economies advance and education levels improve.

However, for investors in the yellow metal, further appreciation may indeed lie in wait even from these climes, especially if China looks to go for gold.