CIC bullish on gold in face of price slump

Wealth fund's exposure is limited, board chief says, citing good performance of investment, and sees metal's price rising over the long term

PUBLISHED : Thursday, 18 April, 2013, 12:00am
UPDATED : Thursday, 18 April, 2013, 5:52am

A senior official at China Investment Corp says the US$500 billion sovereign wealth fund has exposure to gold, although "not on a big scale", and the fund is confident that gold prices will rise in the long run owing to limited global supply.

Jin Liqun, supervisory board chief at China Investment Corp, made the comment yesterday after gold prices tumbled earlier this week, reversing a 12-year winning streak.

"Gold is still the most important reserve for the economies in this world," Jin said on the sidelines of a forum hosted by Pioneer Investments. "In the long run, gold prices will continue to go up, but … not on a very steep curve."

Gold is still the most important reserve for the economies in this world. In the long run, gold prices will continue to go up, but … not on a very steep curve

Fast growth in emerging markets will push up the size of the global economy, and hence demand for gold, he said.

But if the US economy shows resilience with growth of 2.5 per cent to 3 per cent, and if the crisis in the euro zone eases, the pressure for gold to climb will be reduced, he said.

CIC has been "doing pretty well" with its gold investment, Jin said, without elaborating. CIC president Gao Xiqing told a forum last November that the fund's gold portfolio had been "the single most profitable one".

Jin's optimism seemed to have been borne out yesterday, as the spot gold price defied weakening US bullion futures to rise as much as 1 per cent. Buyers snapped up gold bars, coins and nuggets after prices sunk to their lowest in more than two years in the previous trading session.

Gold for immediate delivery was trading at US$1,383.23 an ounce at 10am in London. It touched US$1,321.95 on Tuesday, the lowest since January 2011. The metal has fallen about 18 per cent so far this year.

Jin said CIC is also seeking to invest in "real economic assets" in European countries including Italy, France, and Germany, where the technology sector is strong. Industries such as telecommunications and manufacturing remain in good shape despite the euro zone's macroeconomic difficulties, he said.

Authorities in the euro zone will be able to improve the overall environment "if they have a clear roadmap, if politicians are determined to implement austerity programs, deleverage and stimulate the economy by investment," said Jin.

He expressed confidence in debt issued by European countries and called for unified euro zone bonds, which he said would be attractive to global investors.

"I would say it's probably a very good time for Chinese investors to buy euro debt … even though the euro zone countries are in deep trouble, I believe that they can walk themselves out of it," he said.

"If I were a private investor, I would show you that I would buy bonds of the Greek government, or the Italian government," he said. "I think I can make some money. But in handling public money, probably you have to be a bit more careful."

Jin said CIC pays "equal attention" to emerging markets and is watching developments in Japan. He said the aggressive quantitative easing by the Bank of Japan might be helpful in kick-starting the economy, but that its impact would be limited unless it is co-ordinated with other policies to address deep-rooted problems such as the country's ageing population, Jin said.

"Somehow people believe QE is a panacea," he said. "It's not. If you don't do something else to support this policy, it's a recipe for disaster."