RE: China and Gold‘China should use forex to buy gold’
Posted online: Friday, June 02,
https://www.financialexpress.com/fe_full_story.php?content_id=129182
JUNE 1: China should use its foreign-currency reserves, the world’s largest, to buy gold and oil, as a hedge, to guard against the risk of a sudden drop in the dollar, said an adviser on the central bank’s policy board.
The country has 1% of its reserves in gold, compared with more than 70% in the US. Rising demand may add to gains in the metal that pushed prices to a 26-year high in May. Booming exports and investment doubled Chinese reserves to $819 billion in the past two years, with economists estimating more than two-thirds of the cash went into US Treasuries.
“China has more than enough forex reserves,” said Yu Yongding, a committee member of the People’s Bank of China who advises on policy. “While they cannot be reduced sharply at once, China has decided to take measures to curb the growth rate and diversify investment of its reserves,” he added.
The central bank may use new reserves to diversify, away from the dollar, into other assets, rather than shifting current holdings, he said in an interview in Beijing on May 26. China is the second largest foreign investor in US Treasuries.
Last year, China attracted more than $60 billion of foreign direct investment, while its trade surplus tripled to a record $102 billion.
The country’s forex holdings, as of March 31, surged to $875.1 billion, up more than $50 billion from 2005 end and overtaking Japan as the world’s biggest.
“Central banks will use gold as a fourth currency instead of the dollar, euro and yen” to hedge exchange rate risk, said George Kapasakis, senior forex trader at Mizuho Corporate Bank in Sydney. “Gold will be underpinned.”
China should follow Singapore’s lead in setting up a body to manage its reserves, said Yu, who spent three months there for a “private” visit, including a “personal exchange” with friends at the island’s central bank.
Government of Singapore Investment Corp, which handles more than $100 billion of the city-state’s reserves, says it invests worldwide in equities, fixed-income and money-market securities. It has about 10% of its funds in property.
Gold has rallied about 25% this year, reaching $732 an ounce on May 12, the highest in 26 years.