China May Be Quietly Building Its Gold Reserves

Los Angeles – The gold price began the week at $1,226 and finished the week at $1,238 an ounce for its first four-week gain since June.

Gold bullion prices are up 4.8 percent for the month of August and 13 percent for the year. Silver began the week at $17.93 and finished the week above $19.00 an ounce, gaining 5.9 percent for the week.

China has been seeking new ways to recycle its trade surplus and still hold back any rise in the yuan. China has been buying record amounts of Japanese, Korean, Thai, and Latin American bonds to replace its U.S. debt holdings.

Beijing is buying gold on the dips or doing so quietly through purchases of scrap ores, or by deals with miners such as Coeur d’Alene in Alaska where they buy copious amounts of mineral rich raw materials and extract tiny flecks of gold from the muck at the China National Gold Group Corporation.

The extracted gold doesn’t show up in China’s official imports report or as trade data from major commodity exchanges or bullion markets.

The People’s Bank of China said on Tuesday that banks are being urged to lend more to domestic gold firms looking to go abroad, develop more yuan denominated gold derivatives, and hedge bullion positions in overseas markets.

“This is largely positive news for gold,” said Edel Tully, an analyst at UBS in London. “It looks like an effort to further liberalize the gold market and integrate it into China’s financial framework. It indicates the importance of the Chinese gold market.”

The U.S. existing home sales report showed sales of previously owned homes plunged 27.2 percent nationally in July following the expiration of a popular federal tax credit, igniting investors’ worries of a possible double-dip recession.

The July durable goods orders released Wednesday came in far lower than analysts had expected, with a lackluster 0.3 percent rise when economists were expecting a 3.0 percent increase. Meanwhile, new home sales fell to 276,000 on a seasonally adjusted annual basis, well below the 334,000 expected by economists and the lowest level recorded since 1963. Federal Reserve chairman Ben Bernanke told the Jackson Hole central bankers symposium in Wyoming on Friday that the Fed “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly.”

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