China’s Gross Shortage of Gold Reserves

February 13, 2013
Founder & Chief Editor of Gold Eagle

CHINA SUFFERS A DIRE NEED TO DIVERSITY ITS FOREIGN RESERVES

Compare the Total Foreign Reserves of the world’s major countries:

CHINA………………………………$3,312,000,000,000

USA……………………………………$150,000,000,000

Germany………………………………$256,000,000,000

Italy……………………………………$187,000,000,000

France…………………………………$190,000,000,000

Presently, China has 22 TIMES MORE the total Foreign Reserves than the USA.  In fact CHINA’ s Total Foreign Reserves are MORE THAN 4 TIMES GREATER than the combined Total Foreign Reserves of the USA, Germany, Italy and France…together.

China is truly the world’s Goliath of Total Foreign Reserves.

(Source:  http://en.wikipedia.org/wiki/List_of_countries_by_foreign-exchange_reserves  )

NEVERTHELESS,  China’s FOREX risk is infinitely greater as only a tiny fraction of its Total Foreign Reserves are in gold.

Country…………………Percent Gold Reserves

USA……………………………76.6%

Germany………………………..73.7%

Italy……………………………..73.4%

France………………………….71.8%

Average……………………….73.9%

CHINA………………………….1.8%

( Source:  http://en.wikipedia.org/wiki/Gold_reserve   )

If one assumes China may soon recognize the prudent and sensible merits of gold's FOREX diversification, The Peoples Bank of China Central Bank would need to buy an additional 44,600 tonnes of the shiny yellow. It is imperative to put this quantity into perspective by comparing it to two bench marks:

The world's total existing above ground gold is about 172,000 tonnes

The world's total yearly mine production is only about 2,600 tonnes

THEREFORE China's gold deficit represents 26% of the total existing above ground gold (172,000 tonnes). Furthermore, if China were to buy up ALL the newly mined gold in the world, it would take the next 17 years to accumulate 44,600 tonnes (which would obviously leave NOTHING for the demand of everyone else).

CONCLUSIONS

China is sorely short in gold reserves as percentage of its Total Foreign Reserves.

To  procrastinate  in increasing its gold reserves, China will continue to suffer grievous purchasing power losses in its Total Foreign Reserves portfolio…today estimated at $5 TRILLION…and counting.

IT IS IMPERATIVE TO APPRECIATE that China is obliged to implement an URGENT accumulation plan to buy gold in the open market from existing holders, and to buy up newly mined gold when available. This will inexorably forge new yearly all-time record highs in the value of the yellow metal.

TO BE SURE, China's demanding increased gold necessity  will grow apace with its relentlessly bigger Trade Surpluses, which RELENTLESSLY rise year after year after year.

In light of The Peoples Bank of China's insatiable need for gold reserves, there will NEVER be a peak gold price. To be sure there will be technical corrections when gold rises too much too fast. However, these will only be temporary technical reactions…and will constitute buying opportunities for those new investors who have just  ‘discovered'  gold's incredible total return as compared to all other investment vehicles.

Here are the relative returns (ie performance) of gold vis-a-vis other asset classes since 2001:

Gold……………………………………..up +510%

US T-Bonds……………………………..up  +38%

Dow Stock Index…………………...…..up  +30%

S&P500 Index………………………….up  +15%

US Dollar…………………………DOWN  -27%

http://stockcharts.com/h-sc/ui?s=$GOLD&p=W&st=2001-01-01&en=(today)&id=p36900901008&a=285817299&listNum=2

HOW MUCH MIGHT THE GOLD PRICE RISE IN THE NEXT 4 YEARS?

Since Obama became President,  the US Fed’s Quantitative Easing policies fueled gold up 100% --- and this without the help of CHINA buying the yellow metal to diversify its burgeoning FOREX RISK.   Moreover,  Dr Bernanke of the US Fed has publicly stated Quantitative Easing policies will remain in effect until the UNEMPLOYMENT RATE is reduced to acceptable levels. Obviously, we are looking at 2016 – at the earliest!  Meanwhile , CHINA will soon be buying gold hand over fist to reduce its US Dollar exposure.  In light of all the above, it appears logical the price of gold may rise to over US$6,000/oz by the time Obama leaves office.

Actually, US$6,000/oz might be a tad conservative when we take into account that  “…If China were to  raise its gold reserves to the level of the aforementioned four countries,  the Sino country would have to buy up ALL the newly mined gold in the world, which would  take 17 years to accumulate 44,600 tonnes. This is virtually impossible without causing the price of gold to go parabolic.  Who knows?... US$10,000?...US$15,000?

DISCLOSURE

I am fully invested in precious metal assets…and will continue to accumulate more on corrections as they will eventually occur., since my investment horizon is long-term

* * * * * * * * *

I.M. Vronsky

Editor  – GOLD-EAGLE

www.gold-eagle.com

Founder of Gold-Eagle in January 1997.  Vronsky has over 42 years’ experience in the international investment world, having cut his financial teeth in Wall Street as a financial analyst with White Weld. Vronsky speaks three languages with indifference: English, Spanish and Brazilian Portuguese.  His education includes a degree in Petroleum Engineering from the University of Oklahoma, a Liberal Arts degree from Hartnell College and a MBA in International Business Administration from UCLA – qualifying as Phi Beta Kappa and Tau Beta Pi for high scholastic achievements.  Vronsky believes gold and silver will be recognized as legal tender in all 50 US states and many countries worldwide.  You may reach I. M Vronsky at: vronsky@gold-eagle.com and/or vronsky@bellsouth.net

The Federal Reserve Bank of New York holds the world's largest accumulation of monetary gold.

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