Gold up after CPI soars

08:48, May 17, 2010      

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Gold sales in China have soared on concerns over inflation, with gold prices increasing to 335 yuan ($49) per gram last week.

Gold sales increased by 10-20 percent last week as buyers scrambled to make purchases on expectations prices would continue to rise. Some shops even went out of stock. A Chow Tai Fook store in Guangzhou, South China's Guangdong Province, sold 50 gold bars each weighing 50 grams Friday after the price of gold increased. The Guangzhou-based Yangcheng Evening news reported many investors were worried gold would become even more expensive in the future.

Gold prices headed toward $1,250 per ounce Friday internationally, according to an index compiled by the World Gold Council measuring gold trading in markets around the world. The soaring prices were partly caused by investors' fears after the European fiscal crisis, leading them to shed euro-denominated assets in favor of investments considered safe bets, such as gold.

"Domestic investment channels are relatively restricted, in particular, and real estate and gold are the only inflation-protected investments in China," said Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress. Gold has also become popular due to the Chinese government's campaign to stabilize housing prices.

In April, China's consumer prices rose 2.8 percent from a year earlier, the National Bureau of Statistics (NBS) said. Food prices jumped 5.9 percent, up from March's 5.2 percent growth rate. The NBS said the rise was driven by the increase in vegetable and fruit prices caused by poor weather conditions earlier this year.

"In addition, the CPI increase was caused by massive bank lending last year," Cheng said. "Of course, that was one cause of the hot money."

Last year, loans increased by 9.6 trillion yuan ($1.4 trillion), and the government directly injected an additional figure of more than 500 billion yuan ($73.24 billion) into the economy. Bank lending rose to 774 billion yuan ($113 billion), up from March's 510.7 billion yuan ($75 billion), according to the People's Bank of China.

Regulators have been steadily tightening controls on lending by China's State-owned banks after banks were ordered last year to step up credit to support Beijing's 4 trillion yuan ($586 billion) stimulus.

The flood of money pushed up China's housing prices by 11.7 percent in March over a year earlier. Housing prices in 70 Chinese cities jumped 12.8 percent in April.

Sheng Laiyun, spokesman of the National Bureau of Statistics said, "we are facing big inflation pressures in the short term."

Other economists believing an increase in interest rates is simply a matter of time. "Increasing interest rates will come sooner or later," Cheng said. "It's imperative."

Source: Xinhua

(Editor:黄硕)

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