China Central Banker Wary of ‘Bubble’ Assets, Apple Daily Says

By Mark Lee

Dec. 3 (Bloomberg) -- China’s central bank views gold prices as very high and will be wary of “bubble” assets, the Apple Daily reported today, citing Hu Xiaolian, a deputy governor at the People’s Bank of China.

The long-term benefits must be considered when managing the overall configuration of foreign-exchange reserves, the Hong Kong paper quoted Hu in Taipei as saying in response to a question about whether China’s central bank would buy gold. A bank spokesman declined to comment on the report when contacted by Bloomberg News.

Gold advanced to a record for a third day, reaching $1,226.33 an ounce, as investors sought protection against the prospect of currency debasement and inflation. China increased its gold reserves by 76 percent to 1,054 metric tons since 2003, the official Xinhua News Agency reported in April.

“It comes as a big surprise to me seeing central banks treating gold as a safe haven asset,” Stewart Murray, chief executive of the London Bullion Market Association, said at a conference in Shanghai. Still, “as for China, well, it clearly needs to buy some gold.”

China, the world’s largest producer of gold, has an “extremely low” percentage of bullion in its reserves, implying that it may need to buy just to maintain a constant proportion, Rozanna Wozniak, investment research manager at the World Gold Council, said Nov. 29.

The outlook for gold sparked a debate between economist Nouriel Roubini and Jim Rogers last month. Rogers, the investor who predicted the start of the commodities rally in 1999, said Roubini is wrong about the threat of bubbles in gold and emerging-market stocks. Roubini, who predicted the global economic crisis, said a forecast by the investor that gold will double to at least $2,000 an ounce is “utter nonsense.”

Bank Buying

Bullion has found support from International Monetary Fund sales to central banks. Since the end of September, India, Mauritius and Sri Lanka bought more than half of the 403.3 tons of gold that the International Monetary Fund plans to sell to bolster its balance sheet and boost lending to low-income nations.

China’s gold holdings represents less than 2 percent of its reserves, Jeffrey Rhodes, chief executive officer of INTL Commodities DMCC, said Oct. 23. That compares with the international average of 10.2 percent held by central banks worldwide. China has the world’s largest foreign-exchange reserves of $2.3 trillion.

The country overtook South Africa to become the world’s largest producer in 2007 and the World Gold Council said in July that the nation may pass India as the biggest consumer.

Reserve Boost

China should increase the amount of gold it holds in reserves to reduce potential losses from a depreciating dollar, the China Youth Daily said Nov. 30, citing Ji Xiaonan, head of the supervisory committee at the state-owned Assets Supervision and Administration Commission.

“We recommend China increase its gold reserves to 6,000 tons within three to five years and possibly to 10,000 tons in eight to 10 years,” the paper quoted Ji as saying.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net