re: gold, what price war premium? gold in china By Lee Chyen Yee...

re: gold, what price war premium? gold in china By Lee Chyen Yee
SHANGHAI, Jan 28 (Reuters) - China's central bank, seen
intervening recently in Shanghai's gold exchange to curb sky-high
prices, is expected to allow trade to return to normal after the
Lunar New Year holiday next month, traders said on Tuesday.
Domestic gold prices rose to such dizzying heights that the
central People's Bank of China sold some of its precious metal to
cool prices which had risen above world levels due to a demand
spike before the important annual holiday, they said.
But demand for gold should slacken after the February 1-7
holiday and prices would stabilise, traders said.
The central bank attempted to rein in prices to help domestic
gold processors curb rising production costs and prevent firms
from importing gold illegally to cash in on spreads between
domestic and global prices, they said.
"The central bank is unlikely to intervene if everything goes
back to normal after the New Year," said a floor trader. "The
government will still want to let the market determine prices."
The central bank sold nearly 600 kg of gold just before the
market closed last Wednesday, pushing prices down by more than
one yuan to around 96 yuan ($11.6) per gramme, although prices
and volumes still closed at record highs.
"The central bank intervened several times in the past few
weeks because prices went too high," said a second floor trader.

PRICES SURGE
Domestic gold prices have hit new highs repeatedly over the
past week, surpassing world prices and hitting six-year highs
this week at $372.60 an ounce as worries of a possible war in
Iraq intensified.
But Shanghai's gold prices have eased, with prices of 99.95
percent gold falling to 97.20 yuan per gramme on Tuesday, down
from a record 98.26 yuan on Monday as domestic demand began to
taper off.
Shanghai's average price on Tuesday was equivalent to
$365.20, lower than global spot prices of $368.00/8.50 in
Asian trade as many processors had already bought enough gold to
produce ornaments and jewellery for the New Year season.
Some traders said the central bank used gold from its
reserves to intervene. At the end of 2002, China's gold reserves
were 19.29 million ounces (546.9 million grammes), up from 16.08
million ounces at the end of November.
"The central bank has the right to intervene," an exchange
official said, declining further comment.
Traders said the central bank, the sole intermediary between
gold buyers and sellers until the exchange opened in October, has
maintained some control in hopes of keeping end-products
affordable for consumers by controlling raw material prices.
"If domestic prices rise way above global markets, the
government is afraid that some companies might import illegally
and refine it to standard gold to sell domestically," the second
trader said.
Gold smuggling is common in the country, especially in the
south, as China's annual gold demand of 250-300 tonnes (8.8-10.6
million ounces) well exceeds the estimated 190 tonnes it was
expected to produce last year, officials said last year.