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Commentary: Does China need to buy more gold? (2)

By Zhang Zhouxiang (China Daily)

08:08, October 10, 2012

But what about the long run?

In an e-mail interview with China Daily, Harvey gave two long-term reasons to consider owning gold: For an individual or company, distrust of his or her own government to maintain a sound currency; for a country, inadequate faith in the value of the currency with which its trading partners buy its exports.

In the case of China, Harvey said "its historically low level of gold reserves made sense for a rapidly growing country that had faith in the way that its trading partners managed their economic affairs". Of course, given the economic malaise in the United States and Europe, China has every reason to question its faith in the value of the dollar and the euro. But buying gold is not the only option. It can take other measures and diversify its foreign reserves.

Actually, it is hard to find any connection between the size of a country's gold reserves and the health of that country's economy. Harvey cited the examples of the US and Germany, who despite their large gold reserves still suffered from periods of high inflation and exchange rate volatility.

Harvey concluded, the key to maintaining a healthy economy is sound economic policies, and there was no need for China to increase its gold reserves.

"Gold might be a barometer of failed economic policies. Investing in barometers is not the answer; responsible economic policies are."

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