China central banks hint of dollar diversification and gold goes crazy, whats behind it?
SMITH: China is a part of the reason. They have 1.3% of their $1 trillion dollar reserves in gold already and may double to 2.4%. In comparison, the European central bank holds 26% in gold, so just a 1% shift by China will create a huge demand. We also have petro-dollar flowing into gold, as Frank has said in the past. I agree with Frank that a 10% diversification into gold is prudent. CNBC: So that means China may increase from $13 billion to $24 billion in gold. What is your take on this Frank? HOLMES: Over the next 12 months we see gold with a $50 downside risk and and $100 upside potential. We see this as a combined result of China and India (“Chindia”). Also driving gold prices up are comments from Russia’s taking oil revenue and adding gold to reserves. SMITH: Recent comments by Alan Greenspan also support the diversification by central banks and investors away from the dollar and into the Euro. The trend is away from dollar holdings into all commodities. Also, Japan hold 72% of
