China should buy gold, the only safe haven - Central Bank research head

According to the head of research at China's Central Bank, the country should continue to buy gold as the only safe asset to diversify it's portfolio and protect against foreign exchange reserves.

Posted: Tuesday , 27 Dec 2011

BEIJING (Reuters) -

China should buy gold to further diversify and protect its foreign exchange reserves, the head of research at China's central bank said in comments published on Monday.

Gold has become "the only safe heaven for risk-averse investors" when other assets from government bonds to property are losing value, Zhang Jianhua, the head of the research department at the People's Bank of China, wrote in the Financial News, a newspaper published by the central bank.

"The Chinese government... needs to further optimise China's foreign exchange asset portfolio and to seek relatively low entry points to buy gold assets," Zhang wrote.

Calls for Beijing to spend part of its $3.2 trillion foreign exchange reserves on gold are frequent among analysts, but China's central bank typically seeks to cool down such talk.

Yi Gang, the head of China's State Administration of Foreign Exchange, said earlier this year that the gold market is too small and too volatile for China's foreign exchange reserves.

According to China's central bank figures, China currently holds 33.89 million ounces of gold in its reserves, unchanged since April 2009.

Zhang wrote that as the world's major central banks are expected to pump more liquidity into money markets to support sagging economic growth -- such as the Bank of England's restarted quantitative easing programme -- gold will only look more attractive.

"It's unknown whether newly-injected money will help to boost fragile investor confidence, but it's quite predictable that liquidity would flood again to create additional inflationary pressure," he wrote.

Gold is traditionally bought as a hedge against inflation risks and has rallied to record levels as central banks have engaged in unorthodox monetary policies and printed money to restart growth in the wake of the 2008/09 financial crisis. (Reporting by Zhou Xin and Koh Gui Qing; Editing by Nick Edwards)

© Thomson Reuters 2011 All rights reserved

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