Top Foreign Exchange Manager: China will be prudent in buying gold

I would call this already a war between the US and China.

The US government is creating unprecedented amounts of debt, that can ‘never be paid back’, according to Ron Paul. Of course he is correct.

The Fed monetized 80% of government debt last year, according to PIMCO’s Bill Gross. The Fed created that money out of thin air. ‘Quantitative easing’ sounds so economic, but it is nothing more than just ‘printing money’, which devalues the dollar, which in turn devalues China’s investment!

The US started the war by devaluing China’s assets, but China has already won the war. If China would officially press the ‘sell’ button on their US government debt holdings and their foreign exchange holdings in the US dollar, the USS Titanic would sink immediately.

Of course that victory would come at a great prize and so China is buying time to diversify itself out of the US dollar, that will be soon as good as bad toilet paper.

China will have to buy a lot more gold, silver and other commodities.

In essence the US government has sold out America and is now completely bankrupting and destroying it.

BEIJING (Reuters) – China will be prudent in adding gold to its official reserves, wary that any move to buy the precious metal would only serve to drive its price higher, the country’s top foreign exchange manager said on Tuesday.

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 $1,122 per ounce, as many market participants had already discounted the chances of a sudden gold spree by China.

Many investors have wondered whether China might buy 191.3 tonnes of gold being offered for sale by the International Monetary Fund, after India bought 200 tonnes 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,” David Barclay, commodities analyst at Standard Chartered.

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

“If we have gold correct down below $1,000 then I think it’s more likely, given that they’ve said prices below $1,000 are more reasonable and also it would be lower than the $1,045 level that India bought at. There is that rivalry between the two countries.”

“CHINA WON’T IGNITE THE MARKET”

The Chinese government wowed the gold market last year by revealing it had increased its holdings of the metal to 1,054 tonnes from 600 tonnes in 2003. Buying the IMF gold might cause prices to spike, Barclay said.

“Prices haven’t really corrected that much despite the drop in the euro, and we’ve seen investor positioning turn a bit more positive. It wouldn’t take much, if China did come out, to really ignite the market, and I don’t think that’s something they want to do.”

China’s $2.4 trillion in foreign currency reserves and its relatively small gold holdings have fueled speculation the country is continuing to buy, although officials have insisted that any increases have come from domestically produced gold and the international price is too high.

“It is, in fact, impossible for gold to become a major investment channel for China’s foreign exchange reserves. We have 1,000 tonnes now, and even if I double that holding, according to current prices, that would be about $30 billion,” Yi said. “It would just increase the level of gold (in China’s reserves) to about 2 percent from the current 1 percent.”

Yi also said that, from a long-term investment perspective, gold was not the best play.

“Gold prices in recent years have risen very nicely, but if we look at the price over the last 30 years, gold prices moved in great swings,” he said. “So as an investment, its yield is not very good from a 30-year point of view.”

China is vying with India to be the world’s top consumer of gold. It is already the top producer, with output of 313.98 tonnes last year, up by almost 50 percent in five years.

In January, China produced 21.81 tonnes, a rise of 8.1 percent from a year earlier, according to the Ministry of Industry and Information.

(Additional reporting by Langi Chiang and Tom Miles)

(Editing by Clarence Fernandez)

Zhou Xin and Simon Rabinovitch
BEIJING
Tue Mar 9, 2010 3:08am EST

Source: Reuters

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