Gold's Surge Unlikely To Slow As China Could Emerge As Massive Gold Reserve Buyer

With government's around the world devaluing their currencies, pumping their economies with liquidity created out of thin air, and with central banks around the world choosing to diversify into gold, do you really need another reason to own the precious metal? Well, comments from senior Chinese official yesterday on gold are adding fuel to the fire and puts another feather in the cap of goldbugs.

On Monday, Ji Xiaonan, chairman of the supervisory board for large firms at State-Owned Assets Supervision and Administration Commission, said the Dubai crisis could give China a buying opportunity to put some forex reserves into gold or oil reserves.

A Chinese paper, the China Youth Daily, quoted Ji as saying a task force was set up last year to look at the issue of gold reserves. "We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted Ji as saying. It was last reported that China's gold reserves had risen to 1,054 tons from 600 tons since 2003. So this could mean an increase of up to 10-fold!

After taking a breather Friday on dollar strength, due to the Dubai debt concerns, gold is back to all-time highs. Spot gold last traded at $1196.10, up from yesterday's close of $1178.90.

Many investors have been gaining exposure to gold through ETF SPDR Gold Shares (NYSE: GLD) or through the miners as represented by Market Vectors Gold Miners ETF (NYSE: GDX), which seeks to replicate the price and yield performance of the NYSE Arca Gold Miners Index. Top holdings of the index include Barrick Gold (NYSE: ABX), Goldcorp (NYSE: GG), Newmont Mining (NYSE: NEM), Kinross Gold (NYSE: KGC), and Yamana Gold (NYSE: AUY). There is also a new gold ETF - ETFS Physical Swiss Gold Shares (NYSE: SGOL) - that traders are starting to use.

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