Behind China's Stance on Gold


"What it means when Chinese officials sound cautious on bullion."

Right now, the Chinese love for gold isn't sparkling.

China's chief foreign-exchange regulator says his country's interest in the yellow metal is looking limited these days.

Yi Gang, director of China's State Administration of Foreign Exchange (SAFE), argued that while gold is, "not a bad asset," it doesn't offer convincing long-term returns for investors.

The Wall Street Journal notes that Yi, speaking at a news conference, argued that while China's gold reserves, at 1,054 metric tons, are the fifth-largest in the world, the holdings, at current prices, constitute only 1.6% of its foreign-exchange reserves.

"Gold prices in recent years have risen very nicely, but if we look at the price over the last 30 years, gold prices moved in great swings," he said. "So as an investment, its yield is not very good from a 30-year point of view."

Yi further acknowledged that, given China's heavyweight status, any decision by the government there to buy the metal would "definitely" drive up prices.

We reached out to Michael Pento, senior market strategist at Delta Global Advisors, for his response to this headline-making news.

The strategist thinks Yi could be simply trying to talk down the price of gold so he can buy it more cheaply.

"I don't trust anything they say," Pento says. "But I certainly don't think they want to telegraph their position before they get in. The Chinese minister isn't going to talk about his true intentions to purchase because he doesn't want to compete against himself and drive up the price."

Pento adds, "China has no choice but to diversify out of U.S. dollars. There's no other viable alternative. They will use commodities."

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