By: Reuters
“The Chinese government should not only be cautious of the imported risk caused by rising global inflation, but also further optimize its foreign-exchange portfolio and purchase gold assets when the gold price shows a favorable fluctuation,” said Zhang Jianhua, director of the research bureau affiliated with the People’s Bank of China (PBOC).
Zhang said bleak economic conditions, increasing international liquidity as countries turned to monetary easing and the resulting high inflation had dampened investors’ confidence. He said that gold had become the only “safe haven” for risk-averse investors. “No asset is safe now. The only choice to hedge risks is to hold hard currency – gold.”
China is the largest foreign holder of US Treasury securities, having invested about one-third of its foreign reserves in those bonds. About 20 percent has been invested in euro-denominated assets.
As of this month, China ranked sixth worldwide in gold holdings, with about 1,054 tons. The value accounted for about 1.8 percent of the country’s total foreign reserves, according to a report released by the World Gold Council (WGC).
The US topped the list by holding more than 8,133 tons of the metal, 76.6 percent of its foreign reserves by value, while Germany ranked second by holding 3,396 tons, 73.7 percent of its reserves.
“The PBOC may have realized that its euro-denominated assets are in greater danger than it expected and started to eye gold,” said Li Jie, director of the foreign-reserves research center at the Central University of Finance and Economics.
Central banks made their biggest gold purchases for a single year in 2011 since the Bretton Woods system dissolved in 1973 and major currencies began to float against each other without being pegged to gold. China has vowed to further diversify the nation’s foreign-reserve portfolio amid growing global financial uncertainty. In October, it cut holdings of US Treasury securities by $14.2 billion to $1.13 trillion, the lowest level this year.
All Things Considered – John’s Commentary
China is now divesting itself of Euros in addition to their dollars. The US is supposedly holding over 8,000 tons of gold. That gold inventory number is very suspect, as the holdings have not been independently audited in almost 100 years. The Chinese are very, very shrewd. They see $1,600 gold as ‘cheap’ when compared to their tenuous paper holdings.
Quote of the day: “No asset is safe now. The only choice to hedge risks is to hold hard currency – gold.” – Zhang Jianhua, People’s Bank of China
