China Should Buy More Gold to Diversify Reserves, Ministry Newspaper Says By Bloomberg News
| Oct 27, 2010 9:51 AM ET
China should buy more gold to diversify
its foreign exchange reserves, International Business Daily,
a newspaper affiliated with the Ministry of Commerce, reported.
China should increase its gold holdings
if the country aspires to “internationalize”
its currency, the paper said on its website, citing Meng
Qingfa, a researcher at the China Chamber of International
Commerce. The 1,054 metric tons of gold reserves are inadequate,
compared with the 8,133 tons held by the U.S. and 3,408
tons by Germany, he was cited as saying.
China has $2.6 trillion of foreign-exchange
reserves, mostly in dollar assets, Meng said. Such holdings
will put China at a disadvantage when the U.S. dollar depreciates,
as is inevitable amid a worsening U.S. debt problem, he
said.
China and India will continue to drive demand
for gold jewelry going into the fourth quarter, Bank of
China International Holdings Ltd. said in a report on Sept.
27.
India enters a peak season for weddings
and the Diwali festival in October-November and Chinese
people typically increase their purchases of gold before
the Lunar New Year.
Gold demand in China, the world’s
largest producer, already gained in the first half of this
year as government measures to cool the property market
and falling equities spurred investment, the Shanghai Gold
Exchange said July 7.
Gold climbed to a record $1,387.35 an ounce
on Oct. 14 as investors sought to protect their wealth amid
concerns about the global economic recovery, and is headed
for a 10th consecutive annual increase.
Sales of gold products such as bars and
coins by China National Gold Group Corp., owner of the country’s
largest deposit of the metal, jumped as much as 40 percent
in the first half, Song Quanli, deputy party secretary at
the company, said July 7.
Gold Output
China’s gold output may rise to 340
tons this year, from 314 tons last year, solidifying the
nation’s position as the world’s largest producer,
Zhang Fengkui, section chief of the raw materials department
at the Ministry of Industry and Information Technology,
said on Oct. 16.
To increase physical gold supply, the central
bank also said on Aug. 4 that it will “increase the
number of commercial banks who are qualified to import and
export gold, based on the market demand situation.”
The central bank also said it will support overseas investment
plans by “large-scale” bullion companies by
backing them financially.
Still, the State Administration of Foreign
Exchange, which manages the nation’s reserves, said
in July that U.S. government debt has the benefits of “relatively
good” safety, liquidity, low trading costs and market
capacity.
Gold is unlikely to become a major holding
in China’s foreign reserves because of the metal’s
big price swings and lack of interest payments, SAFE said
then.