China Should Buy Gold for Reserves
China, the second-biggest overseas holder of U.S. Treasuries, should increase its bullion holding to diversify its reserves because the dollar may decline, the country’s gold association said.
“China should have at least several thousand tons of gold in its reserves, five to six times the officially announced 600 tons,” Hou Huimin, vice chairman of the China Gold Association said by phone from Beijing. The group represents producers, traders and retailers.
The U.S. budget deficit climbed to a record in October, and some investors are betting the dollar may weaken as the Treasury would need to sell more debt to finance its $700 billion financial-rescue package. Gold has tumbled 29 percent from its March record.
“There’s no doubt that gold would be attractive, as U.S. debt is likely to swell,” said Kenichiro Ikezawa, who oversees about $3 billion as a fund manager at Daiwa SB Investments Ltd. in Tokyo. “In the long term, both the dollar and Treasuries will probably weaken. It’s possible that China will buy more gold, though the country is likely to do so gradually.”
The dollar dropped 0.5 percent against a basket of six major currencies at 3:25 p.m. Beijing time. Gold declined 0.8 percent to $730.54 an ounce.
Foreign Exchange
China has the world’s biggest foreign-exchange reserves at $1.9 trillion, according to data compiled by Bloomberg. It is also the largest overseas holder of Treasuries after Japan. China’s demand for gold jumped 23 percent in 2007, making it the world’s second-largest consumer.
The Asian nation may buy more gold for its reserves on concern the $700 billion U.S. bank bailout will cause declines in the dollar and Treasuries, the Standard newspaper in Hong Kong reported today, citing an unidentified person.
The People’s Bank of China spokesman in Beijing declined to comment on the newspaper report.
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