China's central bank sees recent drops in the price of gold as good opportunities to increase its holdings of the precious metal.
Now is the most opportune time for China to buy more gold assets when prices of the yellow metal are dropping, to ensure the country maintains and protects a well-diversified foreign-exchange portfolio, Zhang Jianhua, research bureau director at the People's Bank of China, said in the Financial News, a newspaper published by the Chinese central bank.
Gold, along with oil, have been the only two markets to really generate any action over the Christmas break. Gold continues to look bearish with the potential to re-test the lows at 1560. A break of 1590 could be the trigger for such a move. Don’t forget we are moving into a seasonally weak period for gold and other precious metals.
"The Chinese government... needs to further optimise China's foreign exchange asset portfolio and seek relatively low entry points to buy gold assets," Mr Zhang wrote, noting government should remain cautious of possible inflationary pressures rising.
Other assets such as government bonds and property are slowly losing value. "Gold remains the only safe haven for risk-averse investors," he said.
China should increase its gold acquisition, more aggressively when prices drop, Mr Zhang said.
He did not, however, specify as to how much of the country's $3.2 trillion forex reserve should be allocated to gold investments.
Figures from China's central bank showed the world's second-largest economy currently holds 33.89 million ounces of gold in its reserves, unchanged since April 2009.
Gold purchases of central banks from China, Russia, Thailand and Mexico in the third quarter of 2011 showed a hike of more than six times to 148.4 tons compared to a year ago. Figures from the Gold Demand Trends report for Q3 2011 by the World Gold Council said central banks have been aggressively buying the yellow metal to increase their total reserve allocation, a move to diversify investments away from U.S. dollars.
Central bank purchases have more than doubled by 114 per cent over the previous quarter, in what could be the highest level of central bank buying since at least 1970.
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