Reading of the prospect that India may increase their gold % of reserves somewhere around 10% and having only 3.6% now prompted me to read and find the latest numbers which are in the link below.
Anyway, whether India adds gold or not doesn't bring much excitement. What is unnerving, however, is that both Mexico and Canada HAVE virtually NO GOLD!
The complication at this juncture as I see it, Paulson is having a tough time to convince Red China to join the club and jump on the debt wagon by hocking their citizen's future wealth now.
So, how China handles that paltry .9% gold reserves will be something to behold! This compares with the US Treasury which claims that over 75% of its foreign reserves are in physical gold! Remember Ron Paul's experience on the Reagan Gold Commission? He and his Presidential commission was not even permitted to see the physical gold! And, the caveat here is that the Chinese have a heritage with a strong affection for silver, too!
No, at one time we thought maybe the Chinese would simply buy up America's economic infrastructure using Wall Street., and achieve a re-balancing of their reserves in that fashion. But, logic is ringing in my head asking why would they do that and bid against themselves on the stock market bourses? Doesn't make sense to drive up the price of something you want to buy!
It makes much more sense to buy up America, yes, but at much lower prices. China has more to think about than Chuckie Schumer braying about the yuan's value. China needs to remain competitive with India, and the other blossoming Asian economies. Schumer's finding his own demagoguery frustrating as the US economy is not the same economic powerhouse when he and his ilk first came into the Senate.
If China decides to go the gold reserves route and be 'respectable' with 10% of their $1.2Trillion reserves in gold then they'll have to go to $12B or thereabouts. The US$ price used for this report was $716 thereabouts for September 14th. Keeping with the $1.2T total reserves, the existing 600 tonnes, and the $716 gold price China's goal for additional tonnes would be 4,637. Annual worldwide production has been 2,500 tonnes and declining. China's estimated gold production for 2007 should exceed 200 tonnes. So, if that's the direction they want to go, the remaining unknown is over what time period?
What are the drivers to influence China's urgency for implementation - probably the degree of devaluation of the US dollar as that's what about 70-75% of their existing forex reserves are parked in. Although with all paper monies now losing against gold, they may be moving their paper chips closer to the edge of the table.
If any resist they can always fall back on another American creation - Gunboat Diplomacy.
http://www.gold.org/ / value