With the US dollar facing weakness, and the Euro in turmoil, the trend to seek alternative reserve vehicles could extend into the gold market. A shift towards acquiring more reserves in gold by large holders of US dollar and euro reserves such as China, Japan and Saudi Arabia in the one- to five-year outlook would likely put significant upward pressure on gold prices, according to Brian Lawson, Chief Global Economist at Exclusive Analysis, in a special report entitled “Gold Reserves: Their Importance and Future.”
The report continues, “for China, increasing its reserve commodity holdings is not primarily motivated by politics, as it would likely have pursued this measure regardless of the fiscal position of the US and Eurozone. But, the government is likely to take the opportunity to send a political message to the US and Europe anyway. Though diversification could not supplant dependence on US dollar reserves, these countries are likely to pursue more commodity purchases in order to diversify reserves.
China is likely to make marginal adjustments in favour of gold holdings in their reserves, rather than the US dollar or Euro, though without reducing holdings of these. In April 2009, China revealed that it had built up its gold holdings from 600 tonnes in 2003 to its current position of 1,054 tonnes on a gradual basis. Though China has the fifth largest national gold holdings in the world, gold represented only 1.6% of China’s total reserves in August 2011, unlike the top four countries, for which gold represents upwards of 60% of reserves.
Adjustment in this position in a one- to five-year outlook, with China restarting their prior policy of acquisition, provides scope for significant upward pressure on gold prices if even a small portfolio change were to be undertaken by the Chinese authorities, or if other Central Banks followed the recent examples of diversification set by Thailand and Korea.”
By, Exclusive Analysis is a specialist intelligence company that forecasts commercially relevant political and violent risks worldwide. For additional information or to arrange an interview, please contact Head of Corporate Communications Amanda Russo at +44 (0) 207 648 5416; bb: +44 (0)75 5723 1908; arusso@exclusive-analysis.com
