Bullish Chinese Investments Could Lift Gold Eagles

March 10, 2010 – After initial comments from Yi Gang, head of the State Administration of Foreign Exchange in China seemed to indicate a Chinese lack of interest in gold, his revised comments could help to lift Gold Eagle prices as well as other gold bullion.

Yi surprised many by saying, "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." This comment is in spite of a 288 percent increase in the price of Gold Eagles and other bullion over the past ten years.

Yi followed up by saying, "It is, in fact, impossible for gold to become a major investment channel for China's foreign exchange reserves. We have 1,000 tonnes now, and even if I double that holding, according to current prices, that would be about $30 billion." He added, "It would just increase the level of gold to about 2 percent from the current 1 percent."

When pressed about his previous comments, Yi told Reuters. "[Regarding] suggestions that we should increase gold holdings, we will give prudent consideration to this, according to market conditions. If I purchase gold on a massive scale, it will definitely push up global gold prices."

Analysts were pleased by the new comment. Dan Smith, an analyst at Standard Chartered Plc in London said, "Recent data from China has been bullish. When people become more optimistic about China, it helps lift the whole complex, including gold."

With an annual production of 300 tonnes and a consumption of 400 tonnes, China is a significant market for Gold Eagles and other bullion.

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Joshua Harris

Senior Staff Writer - Gold-Eagle.org