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Gold rises after announcement from China

By Cesar Zambrano
web posted August 9, 2010

Throughout recent history, investors have flocked to gold in uncertain times.  Gold, after all, appears to be a safe haven when there are concerns about depreciating currencies, deflation, inflation, and massive public debts.  These factors certainly helped propel the price of one ounce of gold to a record price of $1250 an ounce in June.

That said, the price is gold is quite volatile.  For instance, after gold peaked at over $800 an ounce when the US government ended its restrictions on private gold ownership in the 1970s, it was only worth $250 an ounce in 1999.  Additionally, the price of gold is also influenced by factors such as politics, currency values, and supply/demand.  For example, during the recent financial crisis, the price of gold fluctuated as investors acquired gold and others sold their gold investments in an effort to recoup losses in different markets.

The price of gold rose on August 3, 2010 upon the announcement from China that the country plans to increase the number of banks that will be permitted to trade gold bullion at an international level.  Further, China also announced that it plans to support international investment plans offered by large-scale gold bullion companies by providing them with financial backing.  The price of gold rose, but the US dollar again depreciated in value after this announcement.  This news is important to other investors including forex investors; which is why it is important to only work with the best forex brokers available.

The Chinese central bank also announced that it would like to see better financing services for gold bullion and also hinted that there may be gold bullion tax reform.    These new gold reforms are part of the overall measured integration of the Chinese banking system with the international community.

In order to increase China's physical supply of gold bullion, the Chinese government plans to increase physical gold supply, the central bank will "increase the number of commercial banks who are qualified to import and export gold, based on the market demand situation," it said in yesterday's statement.

With respect to gold investment within China, in 2009, Chinese investors bought seventy-three tons of gold bullion; these figures have increased substantially since 2007 when Chinese residents only invested eighteen tons.  Also, on July 7th, 2010, the China National Gold Group Corp reported that sales of gold bars and gold coins rose forty percent in the past six months.  The gold output in China is expected to rise about five percent this year.  Additionally, China produced 313 tons of gold in 2009 – solidifying China's role as the number one gold producer in the world.   China is also the world's number two consumer of gold – second only to India – which currently has a robust gold jeweler market.

Some analysts believe that this recent announcement may continue to make gold an interesting investment in the near future.   That said, some believe that it may take a while to reach the psychological price of $1200 an ounce again. ESR

This is Cesar Zambrano's first contribution to Enter Stage Right. He can be found at Forex Fraud.

 

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