Chinese economist urges purchase of physical gold for safety

China Keen to Set Up First Gold Investment Fund

From Reuters
Friday, March 3, 2006

a href=http://asia.news.yahoo.com/060303/3/2grsg.htmlhttp://asia.news.yahoo.com...

SHENZHEN, China -- China is keen to set up its first gold fund to
meet increasing demand from Chinese investors, but industry sources
and analysts say that may take several years as the industry is
divided over who would run it. Such a fund could boost gold demand
in China. The country already accounts for about 8 percent of global
gold consumption and, along with India, is seen as the gold consumer
with the most growth potential globally.

Chinese investors were keen to put gold into their portfolios
following rises in gold prices, analysts said.

World spot gold hit a 25-year high of $574.60 an ounce early last
month. It stood at $568.70 at 0626 GMT on Friday.

quot;We are working on it,quot; Hou Huimin, vice president of the China Gold
Association told Reuters late Thursday on the sidelines of a gold
investment forum in the southern Chinese southern city of Shenzhen.

The government supported plans for a gold fund, but there were
differences of opinions in the association about the plan, Hou said,
without providing details.

Industry sources said many groups wanted to lead operations of the
new gold fund, which was creating obstacles to the plan.

The association believed the time was right to set up a gold
investment fund, which could be a private one formed by the
association, banks and large gold companies and then gradually be
opened to the public, sources said.

The size of the gold fund should be 500 million ($62.2 million) to 1
billion yuan. It could invest in products on the Shanghai Gold
Exchange, and then gold futures at home and abroad.

Li Da, vice president of Zijin Mining Group Co. Ltd., China's second
largest gold miner after Zhongjin Gold, said the fund should be also
allowed to invest in gold mines.

But not everyone is convinced that is a good way to invest in gold.

quot;A fund is responsible to its shareholders. Who should the state
assign this fund to? Who is the most reliable person?quot; said Liu
Shanen, senior economist for Beijing Gold Economy Development
Research Center, a state think tank.

He said Chinese investors should buy physical gold for investment
because that was safe.

The Shanghai exchange is China's sole spot gold market allowing only
banks, producers and users to trade. It is also seeking to expand
its products.

But Beijing is careful about opening its gold market, including gold
futures, since gold forms part of its foreign reserves.

Bank of China, the country's top foreign exchange lender, would
allow depositors to buy and sell gold products with their U.S.
dollar accounts as part of a new service to retain wealthy clients,
a bank official said on Wednesday.

Some of China's biggest banks already allow depositors to buy and
sell certificates linked to the price of gold, as part of a general
expansion in the number of investment tools open to individual
Chinese.

The World Gold Council said consumer demand in mainland China rose
8.0 percent to 253.1 tonnes in 2005.

China's gold production rose 5.5 percent to 224.05 tonnes in 2005,
according to the National Development and Reform Commission. It
plans to produce 240 tonnes this year ($1=8.0342 Chinese yuan).

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