China 'should increase its Gold Investment'

A respected figure in the Chinese government claimed today (June 24th) that the country should Buy more Gold as the dollar is set for further declines, Reuters reports.

China revealed in April that it has been steadily increasing its gold reserves in the past six years, with its holdings rising to 1,054 tonnes from the 2003 figure of 600 tonnes.

However, Li Lianzhong, a senior researcher for the Communist Party, explained that more of the country's $1.95 trillion foreign exchange reserves should be devoted to Gold Investment.

He explained at a foreign exchange and gold forum that the dollar - which has an inverse relationship with gold - is set to decline, while the yellow metal could also back a more internationally-prominent yuan.

"The US is printing dollars on a massive scale and in view of that trend, according to the laws of economics, there is no doubt that the dollar will fall. So gold should be a better choice," he was quoted as saying by the news provider.

A similarly positive outlook for gold was expressed last week by Standard Chartered analyst Dan Smith, who also highlighted the strong dollar-gold relationship.

He explained that the major fiscal deficit incurred by the US as it attempts to tackle the financial crisis should eventually play into the hands of the yellow metal.

"The correlation with the dollar has stepped up quite a bit in the last few weeks," he told Reuters.

"We have seen some quite good interest from investors as well. There has been quite a good uptick in terms of net speculative positions … I think that is generally supportive for gold and it suggests the downside is quite limited."

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