Chinese currency move 'underpins gold outlook'
Chinese currency move 'underpins gold outlook'
By Angus Macmillan
Cape Town, Feb 09 (I-Net Bridge)- China's move towards making its currency fully
convertible will be a major underpinning factor for the gold price over the next five
years, while the powerful commodity "super cycle" around the world is also set to
continue, according to well-known international economist David Hale.
At a keynote address on Wednesday, the third day of the annual Mining Indaba in
Cape Town, he said China would want to increase its central bank gold reserves to back
its official currency (the renminbi), with reserves possibly rising to about 10,000
tons. Hale also expected private sector demand for gold to rise in China, another
factor that could fuel "further major gains in the price of gold".
Ironically, China is the world's largest gold producer, but it is its consumption of
and investment in gold that will underpin the market going forward.
While last year saw mining companies spending US$12.1 billion on exploration, Hale
expected the figure to rise to about US$15 billion this year, outpacing the previous
annual record of US$14.7 billion.
"There are about 6,000 people at this year's Mining Indaba , but there could be
8,000 people next year," he said, not trying to punt attendance at the conference,
rather trying to make the point that the benign interest environment in the developed
world and continued economic growth in China and the developing world would extend the
commodity price and demand boom for at least another year.
Commenting on the US and Europe, Hale said both areas were highly unlikely to raise
interest rates this year, due mainly to low inflation and stubbornly high
unemployment. Contradicting this trend, there were pressures in the developing world
and commodity-rich economies to raise rates to counter rising inflation and wage
pressures. Interest rates have already been raised in China, Brazil and Australia with
more monetary policy tightening on the cards.
Although he remained optimistic about China continuing to provide major support for
a range of commodities, he cautioned that recent annual growth rates of 10%-11% in the
world's most populous country would probably slow to 6%-7% in years ahead as the
country's transformation unfolded.
On Africa, Hale was particularly optimistic, stating that there were 25 democracies
on the continent compared with just two a quarter of a century ago. He said three
major factors supported an optimistic view of Africa: high commodity prices, ongoing
Chinese foreign direct investment and a big improvement in the quality of government.
"Last year, Africa's GDP was about US$1.6 trillion, but this is forecast to rise to
about US$2.6 trillion by 2020," he said, with strong growth occurring in
infrastructure spending, consumer spending and urbanisation. Within the next 10 years
there would be at least five "super cities" with GDPs of more than US$25 billion -
Cairo, Alexandria, Lagos, Johannesburg and Cape Town.
Touching on the controversial question of mine nationalisation in SA, he said the
idea was largely the result of some "wealthy" individuals seeing their mining assets
retreat in value and trying to promote - via Julius Malema, the president of the
African National Congress Youth League - the notion of government buying them out.
However, with the recent recovery in the prices of mining assets and shares, this
call for nationalisation had reduced and was unlikely to be a major issue over the
next few years. - I-Net Bridge