China pledges prudence

Category: World News

Date Added: 10 March 2010

ZHOU XIN and

SIMON RABINOVITCH

Beijing

CHINA would be prudent in adding gold to its official reserves, wary that any move to buy the metal would only drive its price higher, its top foreign exchange manager said yesterday.

Yi Gang, head of the State Administration of Foreign Exchange, said that while gold was “not a bad asset”, it would never become a big part of China’s overall investment portfolio.

“The international gold market is very limited. If I purchase gold on a massive scale, it will definitely push up global gold prices,” Yi said at a news conference on the sidelines of China’s annual parliament.

“So, as for suggestions from many friends that we should increase gold holdings, we will give prudent consideration to this, according to market conditions.”

Gold fell $3 in the hour after Yi spoke, later paring losses to reach $1122/oz, as many participants had discounted the chances of a sudden gold spree by China.

Investors have wondered whether China might buy 191,3 tons of gold being offered for sale by the International Monetary Fund (IMF), after India bought 200 tons in November.

“We have been saying that whilst it’s clearly the case that it’s sensible for China to buy some gold, we think it’s more likely they’ll be doing it quietly in the open market as opposed to taking a large chunk of the IMF gold,” said David Barclay, commodities analyst at Standard Chartered.

State media have said the country is unlikely to do so, partly for fear of fuelling market speculation. Barclay said he thought it was largely a question of price.

“If we have gold correct down below $1000 then I think it’s more likely, given that they’ve said prices below $1000 are more reasonable and also it would be lower than the $1045 level that India bought at. There is that rivalry between the two countries.”

The Chinese government shocked the gold market last year by revealing it had increased its holdings of the metal to 1054 tons from 600 tons in 2003. Buying the IMF gold might cause prices to spike, Barclay said.

Yi also said that China would continue to buy US debt. “China is a responsible investor and we fully believe such investments can be mutually beneficial.”

China’s $2,4-trillion in foreign reserves are the world’s largest and their management is closely watched by financial markets, especially as governments raise money for stimulus and struggling companies look for investment. Beijing has never publicly threatened a sell-off and such a move would be expensive and could hurt China. Sapa-AFP

Source: Business Day