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Central banks to buy gold assets { November 2005 } Original Source Link: (May no longer be active)
http://www.bloomberg.com/apps/news?pid=10000081&sid=aEAhBFkvN1Rc&refer=australiahttp://www.bloomberg.com/apps/news?pid=10000081&sid=aEAhBFkvN1Rc&refer=australia
Gold Climbs on Speculation Central Banks Will Add Reserves
Dec. 28 (Bloomberg) -- Gold rose to a two-week high on speculation that central banks, the biggest holders of the precious metal, may buy more bullion to bolster their reserve assets.
China should increase its gold holdings to 2,500 tons from 600 tons, said China Galaxy Securities economist Teng Tai, the official Xinhua News Agency reported. Russia, South Africa, and Argentina also have said this year they would hold more gold. Central banks, mainly in the U.S. and Europe, hold almost a fifth of the world's gold.
``There's talk of Asian central banks adding to their gold reserves, and that's fueling speculation,'' said Robert Cameron, a precious-metals trader at Mitsubishi International Corp. in New York.
Gold futures for February delivery rose $6.20, or 1.2 percent, to $516.30 an ounce on the Comex division of the New York Mercantile Exchange. Prices earlier reached $520.20, the highest since Dec. 14. Gold has jumped 18 percent this year, heading for a fifth straight annual gain.
A futures contract is an obligation to sell or buy a commodity at a set price by a specific date.
Increasing its holdings to 2,500 tons would make China the world's fifth-biggest holder of gold, behind the U.S., Germany, the International Monetary Fund and France. It is currently the 10th- largest holder, according to the producer-funded World Gold Council.
Fewer Sales
World gold production was 2,461 tons last year, according to London-based researcher GFMS Ltd.
Gold has rallied from a 20-year low of $253.20 an ounce in 1999 partly because 15 central banks in Europe agreed to limit annual bullion sales. Central banks sold 478 metric tons last year, or 23 percent less than in 2003, GFMS estimates.
Gold also gained on speculation a cooling housing market may slow the U.S. economy and send the dollar lower.
Mortgage applications filed last week fell to the lowest in more than three years. The Mortgage Bankers Association's index of applications to buy a home or refinance an existing mortgage declined 6.8 percent to 554.1 from a week earlier. The gauge is the lowest since 554.9 in the week ended June 7, 2002.
New home sales fell 11 percent in November, and a record number of homes were left on the market at the end of the month, the Commerce Department said on Dec. 23. Sales of existing homes, which make up about 85 percent of the housing market, probably fell to a 7 million annual rate last month from 7.09 million in October, according to the median forecast in a Bloomberg survey before tomorrow's report.
``The housing market will have an impact if it comes off hard,'' said Domenick Nardo, a trader at FIC Commodities in New York. ``A weak forecast for the economy would be supportive of gold.''
Signals on Economy
The yield on 10-year Treasuries dropped below two-year yields yesterday for the first time since 2000, a sign some investors expect economic growth to slow as a result of the Federal Reserve's 13 interest-rate increases since June 2004.
Gold reached a 24-year high of $544.50 on Dec. 12 as investors bought the metal as an alternative to U.S. stocks, bonds and currencies.
Gold has performed better than the Standard & Poor's 3.8 percent gain this year and the benchmark 10-year Treasury, which has returned 2.4 percent through Dec. 27, including price change and interest payments, according to Merrill Lynch & Co.
The metal has gained in all currencies this year, paced by a 33 percent gain in euros and yen.
Last Updated: December 28, 2005 14:09 EST
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