Economic Times of India

Gold rush: Keep an eye on China, dollar movements

October 12th, 2009

By Kiran Kabtta Somvanshi
Gold prices touched a new high of $1061.5 per troy ounce in the international spot markets last week. Bullion prices have risen by 20% in the past six months to cross the $1000 mark. In India, the price of the yellow metal has appreciated by nearly 10%, crossing the level of Rs 15,000 per 10 grams.

While a weakening US dollar, inflation worries and the uncertainty regarding a global economic recovery have contributed to the dizzying rise, buying by economic powerhouse China has also contributed to the rally.

The Asian dragon has been steadily buying huge quantities of gold since the past nine months, pushing up its price. According to the latest data released by the World Gold Council on world official gold holdings, China has the sixth-largest gold holding in the world at 1040 tonnes as on September 2009. The country has been on a gold buying spree — doubling its holdings in the past six months.

The Chinese authorities are pushing their citizens hard to buy gold, probably as a protection against a possible credit bubble. The main state-owned television company is reportedly promoting gold and silver as investment. Chinese banks are soon slated to sell gold and silver bullion bars in four different sizes to individuals, and if reports are to be believed, China’s largest bank — the ICBC — is setting up a precious metals department to handle the growing investor demand.

According to international industry watchers, high gold prices suit China. If Chinese authorities are pushing gold as an investment for its citizens, then it becomes obligatory to hold the price by propping it up. Investors in India would obviously need to keep an eye not just on buying by China but also on the movement of the US dollar in the global currency markets. That will determine the future course of the price of gold.

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