Chinese central banker says gold is 'separate' from FX diversification


9:30p ET Friday, November 10, 2006

Dear Friend of GATA and Gold:

Reuters has gotten another interview with the head of China's central bank and drawn him out on plans for diversification of the country's foreign exchange reserves. The Reuters correspondent, Simon Rabinovitch, even had the wit to ask about gold, and got an answer that was telling for being so cryptic: "That's a separate thing."

Indeed. That "separate thing" is the secret knowledge of the universe, far bigger than mere foreign exchange -- so big that it can never be discussed fully and frankly. The disposition of the world's gold reserves is a secret more sensitive than the plans for construction of nuclear weapons.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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China's Reserve Shift
Taps FX, Emerging Markets

By Simon Rabinovitch
Friday, November 10, 2006

FRANKFURT -- China will diversify its $1 trillion foreign exchange reserves across different currencies and investment instruments, including in emerging markets, Chinese central bank governor Zhou Xiaochuan said on Friday.

A mushrooming trade surplus meant China needed stronger policy adjustment both on the yuan and to boost internal demand, Zhou said.

He also said the Chinese economy was showing signs of slowing and declined to talk of further interest rate rises.

Zhou, in Frankfurt for a European Central Bank conference, expanded on comments he made to Reuters on Thursday that China had a clear plan to diversify its foreign exchange reserves and was considering various options to do so.

Diversification "includes currencies, investment instruments, including emerging markets," he told Reuters on Friday. Asked if this included gold, he said: "That's a separate thing."

Key factors guiding China's reserve diversification plan were liquidity, safety, and efficiency, Zhou added.

Asked if China was considering speeding up reserve diversification, he said it would stick to its original plan.

Zhou's comments on Thursday helped push the U.S. dollar to a two-month low and prompted gains in precious metals as investors speculated the latter could be the target of Chinese buying.

China's foreign exchange reserves are the world's largest, and continue to grow rapidly on the back of the country's massive trade surpluses and the central bank's efforts to control the yuan's exchange rate within a narrow band.

Zhou expressed satisfaction that China's rapid pace of growth was easing. "It has already slowed down to some extent so we have reached the expected result of macro-economic adjustment," he said.

Asked whether or not he will raise rates further, Zhou said: "It is not convenient to say right now."

China posted a record trade surplus of $23.83 billion for October, handing policymakers a major headache and raising the prospect of even greater international pressure on Beijing to let the yuan rise faster.

"That means we need stronger policy adjustment not only on currency. We also focus on enhancing internal demand," Zhou told reporters.

The surplus soared from $15.3 billion in September and was almost double the October 2005 figure of $12 billion.

Economists had expected strong pre-Christmas demand for China's toys, electronics and other goods, but the surplus was a third more than the $17.7 billion they had forecast.

"Recent trade surpluses to some extent are related to season because now it's close to Christmas. ... We should observe average monthly trade surplus," Zhou said.

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