daytrade diaries... september 22, page-21

Reason for gold rise here. Gold targets remain to the high side.

China could buy IMF gold - Source

The Asian superpower is said to be considering the purchase but, only the price is right and the return is "relatively high"
Author: Reuters
Posted:Monday,21 Sep 2009

BEIJING (Reuters) -

Chinais considering buying gold being offered for sale by the InternationalMonetary Fund, Market News International said on Monday, citing twounnamed government sources, but the report could not immediately beconfirmed.

"China will consider buying if the price is right and the return isrelatively high," MNI quoted one of the government sources as saying.

Gold XAU=, which had dipped just below $1,000 an ounce, rebounded to$1,003.45 after the report. That would put the market value of the403.3 tonnes on offer from the IMF at close to $13 billion.

"There was a small reaction to the news that China may discuss itsgold plans at the G20, it recovered a little, but overall the marketisn't overly concerned, not yet anyway," a Europe-based trader said.

China, the world's biggest producer and buyer of gold, revealedearlier this year that it had lifted its own stocks of gold to 1,054tonnes from 400 tonnes when it last reported its holdings in 2003.

The IMF formally endorsed a plan on Friday to sell 403.3 tonnes ofgold, one eighth of its holdings, to central banks or in the goldmarket.

Two Chinese central bank officials not directly involved in theissue told Reuters China should consider buying the gold being put upfor sale by the IMF, but only at a big discount.

The officials, neither of whom had direct knowledge of the gold strategy, said they were expressing personal opinions.

"China only has about 1,000 tonnes of gold reserves and theinvestments in other assets are performing not very well," said oneofficial, who declined to be named.

"I think we should build up more gold with foreign reserves, butwhen to buy is the key. It's a good idea if China can buy the gold fromIMF at prices well below market level."

The official said he had no idea if the sale would be on the agenda for the G20 summit.

"I personally think China should buy the IMF gold. It will helpChina to diversify its reserve assets," the second official said. "Forthe purpose of reserve safety, it is also good to increase theproportion of gold by a suitable amount."

The estimated $13 billion cost of the gold is small beer for theChinese exchequer, with foreign exchange reserves of more than $2trillion. If it decided to buy the gold, China would be likely to seeka discount for the bulk purchase, since a market sale would put heavypressure on the price.

The IMF has said it will try to sell the gold, one-eighth of itsholdings, to central banks. If there are no takers, it could sell tothe market, which saw world gold demand of 3,880 tonnes last year,according to World Gold Council figures.

The huge increase in reserves that China announced earlier this yearhad had little impact on the market because the gold was accumulatedover a long period and mainly through direct purchases from Chineseproducers. (Reporting by Eadie Chen and Tom Miles; Editing by ClarenceFernandez)

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