Hu Xiaolian, the head of China’s State Administration of Foreign Exchange told Xinhua news agency that the country has added 454 metric tons to its gold reserves since 2003 when it said reserves totaled 600 metric tons. Purchases were made off the exchange as private transactions, Hu said which explains the global surprise by the Friday announcement.

The recent buying brings China’s total gold reserves to 1,054 metric tons and the ratio of gold to total reserves to 1.6% from 1.7% in 2003, according to Tom Pawlicki, a precious metals and energy analyst at MF Global. It also places them fifth among countries with the largest gold holdings.

Pawlicki expects China to continue building gold reserves because its has recently expressed interest in buying strategic commodities while prices are low. Gold is an obvious choice given China’s huge foreign exchange reserves.

“The purchase of gold removes some country risk inherent in foreign currency holdings and protects against potential dollar weakness,” Pawlicki said.

The news helped push up prices of gold futures trading on the Comex division of the New York Mercantile Exchange with the price of June gold up by $7.50 to settle at $914.10 an ounce on Friday.

Axel Merk, president and chief investment officer of Merk Mutual Funds, suspects that China’s decision to address its gold reserves is in keeping with the country’s recent efforts to increase transparency as it endeavors to become a more active participant in global financial markets. Lately, the country has been seeking a more active role in the debate over global currencies and Merk suspects that the country is looking to diversify its reserves as a way to become a more active global player.

China may also see an opportunity in possible gold sales of 400 metric tons by the International Monetary Fund. Merk said buying gold from the IMF would be a way for the Chinese to build its reserves quickly without causing large disruptions to the market.

The Fed surprised investors on Wednesday by announcing it would buy $300 billion worth of long-dated US Treasuries, the first aggressive buying since the early 1960s, as part of a move to inject an additional $1 trillion into the economy by also purchasing more US mortgage and agency debt.

This sent the dollar lower and helped lift commodities, which have seen some signs of strength in recent days and sent the Reuters-Jefferies CRB index, a global commodities benchmark, to a five-week high.

Oil jumped more than 6 percent to above $51 a barrel, its highest since early December, while copper rallied over 5 percent to its highest in more than four months as investors dipped their toes in riskier markets on hopes that the global slowdown may soon reach bottom.

“Commodities take a lot of cue from equities and this move (from the Fed) could be a reassurance that equity markets, which have been rallying in the last couple of weeks, could continue to rise,” said Michael Lewis, global head of commodities research at Deutsche Bank.

“If we get more of these concerted easing steps they will obviously help,” he said. European shares rose around 2 percent by midday while the euro was up around 1 percent versus the US dollar.

A fall in the greenback makes dollar denominated assets such as commodities cheaper for holders of other currencies.

US crude for April was up $3.84 a barrel at $51.98 by 1310 GMT, having earlier traded as high as $52.04. London Brent for May delivery rose $3.61 to $51.27.

“We have for the time being a return to risk appetite in the oil market and it’s based on the Fed’s announcement yesterday,” said analyst Mike Wittner of Societe Generale. “That’s having a positive impact on sentiment.”    

Spot gold rose to a peak of $951.90 an ounce, its highest since March 2, and was quoted at $947.20/949.20 an ounce from $940.00 late in New York on Wednesday.

Richcomm Global Services said in a research note there are concerns the Fed move may prompt other central banks to follow suit, creating a domino effect of weakening currencies and sending investors to safer investments such as gold.

The move and improvement in the sentiment pushed all metals higher. London Metal Exchange copper rose to $4,020 a tonne, above $4,000 for the first time since Nov. 10. Aluminium jumped 4.5 percent, while nickel rallied 3.7 percent.

Copper is up 25 percent this year in London and 30 percent on the Shanghai Futures Exchange, but some analysts think the initial euphoria from the Fed move could peter out soon with any expected benefit unlikely to be felt immediately.

“There may be positive economic benefits but I think it will take time for those to emerge. For the time being, real economic data out of the U.S. has remained extremely weak and an obstacle to sustained recovery in base metals prices,” said said David Moore, commodities strategist at Commonwealth Bank of Australia.

Demand growth in China, the world’s largest copper consumer, is also sluggish with estimates of an increase of between 3-8 percent this year, say analysts.

Sugar, cocoa and coffee futures all rose, swept up in a broad-based advance in commodity markets triggered by the Fed measures.-Reuters

Nor is that the only good news from Goldcorp. Although the calculation of operating costs for 2008 has not yet been completed, the company expects total cash costs will be $300/oz of gold on a byproduct basis.

The company is also predicting it will produce another 2.3 million oz of gold in 2009 at a total cash cost of $365/oz on a byproduct basis. Increases will be achieved at most mines, but production at the Alumbrera mine in Argentina and El Sauzal mine in Mexico will be significantly lower than previous years. The 2009 forecast for Goldcorp’s Canadian operations include 620,000 oz from Red Lake mines, 290,000 oz from the Porcupine division, and 235,000 oz from Musselwhite mine.

Nor is Goldcorp the only bright spot.

Northgate Minerals of Vancouver also recorded record gold production in the fourth quarter of 2008. Q4 output was 118,265 oz, bringing total 2008 production to 354,800 oz, a yearly record. Northgate said its average net cash cost per ounce was $421. The company expects output to grow by approximately 50,000 oz to 392,000 oz in 2009.

Toronto-based Kinross Gold reports production during 2008 was up to approximately 1.9 million oz AuEq, an increase of 16% from the previous year. Average cost of sales for 2008 will be $425 to $445 per oz AuEq. A production increase of 32% to also slated for 2009, reaching 2.5 million oz AuEq.

Agnico-Eagle Mines, also headquartered in Toronto, has set a target of 300,000 oz of gold in 2008 from its LaRonde and Goldex mines in Quebec and Kittila mine in Finland. Total cash costs during Q3 2008 (the latest quarter for which figures are available) were $307 per oz.

Things are not quite so shiny at Barrick Gold of Toronto. Production is expected to be within the 2008 guidance range at 7.6 million to 7.8 million oz , but that number is down from 8.1 million oz produced in 2007. Estimated costs have risen to $425 to $445 per oz in 2008 from $350 an oz in 2007. We will have to wait for audited year-end figures to know how much these changes and the volatile price of gold will affect yearly earnings.

All in all, Canada’s gold producers have a profitable year behind them. It is 2009 that will be the challenge. – Canadian Mining Journal

Gold, which investors often use as a hedge against inflation, tends to move inversely with the dollar. The greenback has gained strength in recent months as currencies around the world weakened due to the worsening economic outlook. But the dollar changed direction Friday, falling against the euro, British pound and Japanese yen in response to the U.S. government’s latest efforts to help prop up the ailing financial industry.