Friday, December 21, 2007

China Buying Gold

The international giant nation of China is turning its attention to gold these days.

As the world scrabbles to keep currency buoyant and the US dollar weakens, China is buying gold and platinum as an investment and what looks like a hedge against the declining US dollar said Ralph Preston, senior market analyst with Heritage West Financial.

According to Larry Young, senior trader with Infinity Futures, in addition to the increasing manufacturing uses for gold and platinum, the Chinese are also buying the precious metals as a hedge in case Beijing decides to let the yuan float. The currency is only allowed to fluctuate in a range that is tied to the value of the U.S. dollar which could be a problem if the dollar continues to weaken.

"They're looking at several strategies" for trying to get the lowest price for their commodities, Young said.

Because of a worsening global economic outlook and financial-market uncertainty, the Chinese want the safe haven that gold and platinum offer even above Treasurys, Young said.

"They want something that they can touch and feel," Young said.

China has $1.3 trillion (€900 billion) in cash reserves of which nearly 65 percent is in U.S. Treasurys and only 1.6 percent in physical gold, said Bill Reynolds, investment adviser and commodity specialist with Wellington West Capital.

"This past year — rightfully so — their belief that the U.S. dollar was and will continue to devalue ... has had the Chinese government and others continuing to purchase gold," Reynolds wrote in an e-mail. "This, along with a more liberal Chinese government, which has allowed the citizens to now purchase more luxuries, such as jewelry."

As the world's most populous country, that demand will likely continue to support precious metals prices, Reynolds wrote. It seems that china buying gold for the future bodes well for the gold price, if not for the US Dollar.

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