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Chinese central bank gold buying unlikely - Virtual Metals

In an interview on Radio 2000 @ 06:20 on 18 January 2006

[miningmx.com] -- THE Chinese central bank is unlikely to be a buyer of gold in any large quantities because it would push prices too high and make it difficult to sell the metal again, said Matthew Turner from Virtual Metals.

"We don't think they will," Turner told the Moneyweb Power Hour business radio show.

"The volume they will need to buy would be so large it will not be possible for the gold market to supply the gold without the price shooting up so high that it would leave the Chinese central bank with a problem of how to sell it again," he said.

One of the rumours driving the market is that the Chinese central bank and other central banks could begin buying gold, he said.

Virtual Metals is concerned about slumping demand for gold jewellery, particularly in India where levels are at one third of those they normally are and one fifth of those at the start of 2005, Turner said.
consumers are switching to diamonds
"Is this consumers postponing their consumption to buy again when the price steadies or are they switching to other products?" he said.

"We've heard from evidence in the Middle East that consumers are switching to diamonds, for instance," he said, adding that jewellers would resume buying if the gold price fell to $500/oz.

Virtual Metals is pessimistic about the gold price over the medium term because of concerns about jewellery demand, central bank selling and a lack of central bank buying, he said.

There is also a "large amount" of scrap gold coming into the market, he said.

"The fundamentals of the market are changing and this could take the price down in the medium term," he said.