china and gold as investment class?

Just following the theme of China and a thinly exposed love of gold as an asset class. The Chinese government has an issue in what to invest in. Previously they have been in love with US Bonds, but the investment returns are not good, the playing field is a little distorted and the odours are worse, ..... and there is uncertainty on the horizon( election).

So what do you tip massive amounts of investment dollars into? Agriculture for sure, as people need to eat...and long term useful commodity access, they need infrastructure and buildings/cars etc...but then there is gold.

So the largest buyer of gold, could move a long a little...allow more access to gold for its banks, citizens
,,,

Another view below, but be sure they will not put all their eggs in one basket, but gold will be a basket that may get very large....???

China's dilemma - where to park all those funds?
Date
July 20, 2012 - 12:58PM

The People's Bank of China buys more than $US2 billion of foreign exchange each working day from Chinese businesses and foreign investors to hold back the appreciation of the nation's currency - the yuan.

This hoarding has resulted in an unprecedented expansion of country's foreign exchange reserves. It has increased 160-fold from a measly $US20 billion in 1993 to a staggering $US3.2 trillion in 2012.

And this run-up has presented the Chinese central bankers with the envied task of finding suitable locations to park the vast and growing funds.

Chinese investors have hunted to four corners of the earth for opportunities, from Arabian oil-fields to iron ore mines in the Pilbara.

Film-makers have been quick to recognise the implications of this growing largesse as well. The Hollywood blockbuster Syriana starring George Clooney features a team of Arabic-speaking Chinese oil executives keen to wrestle oil assets from the Americans.

The latest Chinese box-office hit is a whirlwind romance story involving two former lovers from rival investment banks fighting over a lithium mine in WA of all places!

So far, though, conservative Chinese bankers have placed their faith in US treasury bonds even if their confidence in Uncle Sam continues to be eroded by the rounds of quantitative easing - a weasel phrasing that masks the deliberate effort to weaken the value of the US dollar.

Beijing thinks Washington is trying to inflate its way out of its debts by turning on money printers.

The US Treasury Secretary Timothy Geithner tried vainly to reassure its Chinese bond buyers and was ridiculed by undergraduates when he fronted Peking University.

Alternatives

So the Chinese government is looking for alternatives to spend its hard-earned cash. What would they make of Australia as the place to invest?

The collective market capitalisation of the top 200 listed companies in Australia is about $1.12 trillion and this includes blue chip companies such as BHP Billiton, Australia-listed shares of Rio Tinto, the big four banks, and retail giants such as Woolworths and Wesfarmers.

So, the Chinese central bank could in theory buy all the top ASX 200 companies for a third of its foreign exchange reserve - although it might have to throw in few extra hundred billions as takeover premium.

China could also assuage its fear of resources bottlenecks and food security by buying up an entire year's output of Australia's of energy and mineral commodities for $209.5 billion and $48.7 billion more for the whole year of agricultural production.

It might even choose to bankroll the entire cost of Australian resources investment pipeline estimated at $456 billion, according the 2012 budget papers.

The entire private housing stock in Australia is estimated to be $3.5 trillion, so there is nearly enough money to buy all the bricks and mortar in Australia as well - if foreign investment rules were loosened.

This giddy speculation serves to highlight two important points. Firstly, the vast scale of China's fiscal power and the difficulty for Beijing to diversify its reserves away from the US treasury bonds. Nothing comes close to the depth and liquidity of that vast - and growing - market.

Secondly, China will play an increasingly important role as a major international investor in coming years. Australia has already seen a glimpse of the potential Chinese investment in the mining sector, and can expect a whole lot more in the future