01/30/2009, 00.00
ASIA
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And what if China starts buying up gold . . .

by Maurizio d'Orlando
Buying gold is one way of weathering paper money devaluation, especially the US dollar’s. Economists voice their concerns at Davos as the gold goes up and up.
Davos (AsiaNews/ Agencies) – The price of gold is likely to rise three, four-folds if China starts to buy gold and dump US dollars, said Peter Munk, chairman and founder of Barrick Gold, a leading gold-mining company. He made the prediction at the World Economic Forum (WEF) in Davos, an annual event that draws leading figures from the worlds of politics, finance and industry to discuss the main economic issues of the moment.

Despite the drop in commodity prices, the value of gold has jump by more than 20 per cent since last October.  This according to Munk is due to investors buying heavily into physical bullion in the form of coins and bars, and physically backed assets, such as exchange-traded funds, as a safe store of value at a time of increased volatility in other asset prices.

The downward pressure on the dollar, partly due to massive US spending and printing money to stimulate the economy, is likely to further increase gold’s attractiveness as an investment.

There is also a possibility that central banks, including that of China, a major dollar asset holder, might start buying gold.

“If they [the Chinese] decide to diversify [their investments in US dollars], we assume into gold, then we start to talk about a trebling or quadrupling of the gold price,” he said. “It could be followed by Russia or Kuwait.”

Although still not very likely, such a scenario for Munk is more likely now than two years ago.

In Europe gold traded at US$ 930 an ounce, not too far from the record high of US$ 1,030.80 achieved in March last year.

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