GOLD PRICE NEWS - The gold price fell $5 to $1,117 as the price of gold was pressured by comments from China regarding its reserves, as well as by further concerns in Greece that led to a rally in the U.S. dollar. At $1,117 the gold price traded lower by $15 on the week and was unchanged month-to-date. Over the past two days several headwinds for the gold price have emerged, including weakness in the euro currency versus the dollar - as the price of gold has generally moved in tandem with the euro over the past several years. The euro traded lower by 0.3% to 1.3580 against the U.S. dollar this morning as ongoing sovereign debt issues in Greece contributed to a flight to the relative safety of the greenback.
Meanwhile, the gold price faced additional pressure from comments by Yi Gang -head of the State Administration of Foreign Exchange in China, the chief foreign-exchange regulator - who spoke at the National People’s Congress in Beijing. Mr. Yi stated that due to price risks, gold is “unlikely” to be China’s main asset class in which to diversify its $2.4 trillion reserve holdings - the largest of any nation across the globe. “Gold is not a bad asset, but currently a few factors limit our ability to increase foreign-exchange investment in gold.”
These comments stood in contrast to market speculation over the past several months that China was considering purchasing gold bullion from the International Monetary Fund (IMF) in order to gain more exposure to the gold price. Many investors and market strategists have also suggested that China is looking for ways to reduce its holdings of U.S. dollars due in part to the ongoing easy monetary policies and money printing implemented by the Federal Reserve.
Mr. Yi went on to say that while China’s gold reserves - which at 1,054 metric tons are the fifth-largest in the world - its gold holdings represent only a small portion of its total foreign-exchange reserves. According to figures of Chinese holdings at the end of 2009, gold comprised approximately 1.6% of China’s foreign-exchange reserves at the current market price of gold. In addition, Yi stated that holdings of gold by Chinese individuals have been estimated at greater than 3,000 metric tons.
In April 2009 the gold price received a boost from China’s announcement that since 2003 it had increased its reserves by 454 metric tons to 1,054. Based on data from the World Gold Council, China is the world’s largest gold producer and the second-largest consumer of gold, after India. Chinese annual gold output is approximately 300 metric tons, while the nation consumes roughly 400 metric tons per year, according to Mr. Yi.
