Wednesday, March 9, 2011

Advisor Says Mainland China Government Should Buy More Gold

Li Yining, a senior economist at Peking University and member of the Chinese People's Political Consultative Committee, which advises mainland China' Parliament, has called upon the government to diversify its foreign-exchange holdings into gold whenever the price drops significantly.
"China should increase its gold reserves appropriately, and China must take every chance to buy, especially when gold prices fall," Li was quoted by the official Xinhua news agency as saying.

His view that Beijing should diversify its foreign exchange reserves, the world's largest, into commodities is nothing new. Many other academics have publicly called on Beijing to do so.

But Li's views may carry more weight than most. Many of his former students are now high-ranking officials, including Chinese Vice Premier Li Keqiang, who is seen as Premier Wen Jiabao's likely successor in 2013.
Yi Gang, the head of the State Administration of Foreign Exchange, is on record as saying that it's infeasible for the government to buy a lot of gold on the spot market. If the government does so in a big, way, the price will shoot up and it will wind up holding the bag ocne the price falls.

Whatever the outcome, the Chinese people are showing a (government-encouraged) enthusiasm for buying the metal. The People's Bank of China's reserves have not budged since April 2009, but private holdings have exploded. The government may be seeking to encourage gold in private hands because it itself doesn't want to take the risk right now. This dual track could be a lead-from-below situation in the making, with prior (albeit indirect) encouragement from above.

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