China Gold Buy Would Be No Surprise: Analysts

http://www.kitco.com/reports/KitcoNews20100226.html

China Gold Buy Would Be No Surprise: Analysts
By Daniela Cambone, Kitco News, 26 Feb 2010

Montreal (Kitco News) -- Despite the elusiveness of confirmation of circulating rumors, some industry analysts said they would not be stunned if China emerged as the buyer of the remaining 191.3 tons of gold to be sold by the International Monetary Fund.

On Thursday reports emanating from Russian media said that China had bought the gold, but there has been no confirmation and sources for the story were dubious.

"I would not be surprised if China is buying the IMF gold," said James Turk, Editor and Founder of GoldMoney.com. "In fact, I have assumed all along that they bought it when India did, but did not announce the purchase then because President Obama was visiting China and China did not want to ruffle any diplomatic feathers."

He added, “Given the delayed disclosures China made to the IMF about its purchases earlier this decade and also the purchase they announced last summer long after it had been made, it is clear that China announces its purchases when it feels the need - not when they are made. “

The IMF had no comment on the rumors on Thursday when contacted by Kitco News. Some sources said the rumors briefly boosted gold futures prices on Thursday News surrounding the potential buyer began circulating as soon as the IMF announced the sale to the open market in mid-February.

Turk said that it is correct to assume that this IMF metal is not overhanging the market. “I believe the opposite to be the case. All indications to me are that physical metal remains tight. For that reason, I am expecting gold to surge in March and test overhead resistance at the $1200 record high before the end of March," he said.

Roger Wiegand , Editor of TraderTracks echoed the same views on a China buy. “I would think that China would want to buy gold, they were disappointed when India made the large purchase; consequently they missed out and they would like to buy more gold.”

Wiegand said that China is a big believer in gold, “They are gold miners, they buy on the open market and they have a great deal of American paper that they would rather trade for gold, so it makes a lot of sense.”

He said it was interesting that the China rumor coincided with the news that China’s Zhu Min, was appointed as special adviser to the IMF’s managing director. China has been waiting for years for an influential position at the IMF. While Zhu will not have direct influence in driving the IMF's policy agenda, he may have some impact on the margins.

Wiegand also said that if China does not emerge as the gold buyer, he sees India as the next likely candidate.

Mark Skousen, Editor of Forecasts & Strategies and Producer of FreedomFest thinks that the China story is still just a rumor but said it would not surprise him if they were the buyer. He said that China has had a long standing love affair with gold. “Gold is the ultimate protection against crisis, it only makes sense for China to buy the ultimate inflation hedge,” he told Kitco.com.

He said it would make for a very interesting situation if India also enters the picture and there would be several competing bids.

Overall, Skousen said that regardless of the buyer these numbers are not large amounts, “it represents no more than 5% of foreign exchange.”

David Morgan, founder of Silver-Investor.com, says that even though the amounts may not be huge, the message is strong. Morgan refers to when India purchased 200 tons, “Within the context of the gold market it is practically nothing, but in the context of psychology it means a big deal. It means that they would rather own gold than dollars.” he said. That same message would be further enforced with a China buy of gold, he said.

-- By Daniela Cambone of Kitco News, dcambone@kitco.com