China denies it will sell dollars from reserves

[HenryTo]

Looks like the Chinese government will keep its dollar reserves for now.
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China denies it will sell dollars from reserves
Central bank refutes report it will unload greenbacks

The Associated Press
Updated: 11:28 a.m. ET Jan. 10, 2006
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BEIJING - China said Tuesday it has no plans to sell dollars from its $800 billion-plus foreign reserves, rejecting speculation that had jolted financial markets and fed speculation about the possible impact on the U.S. dollar.

"We won't sell off our dollar-denominated assets," a central bank official, Tang Xu, told Dow Jones Newswires.

China's foreign currency regulator said last week its plans for 2006 include "widening the foreign exchange reserves investment scope." That sparked speculation that Beijing might shift some reserves from dollars, the bulk of its holdings, into other currencies.

China's foreign currency reserves are the world's second-biggest after Japan, and traders closely watch how they are handled. Much of the reserves are in U.S. Treasuries, and any move to sell them could influence bond and currency markets.

Financial analysts say China has few options to move assets out of dollars due to the vast size of its reserves, because financial markets in other currencies offer fewer bonds and other assets.

Gold prices have risen to their highest level in nearly 25 years on international markets, partly due to speculation that China and other nations' central banks might shift reserves into precious metals. Gold closed at $546.50 an ounce on Tuesday in Hong Kong, up $4.50 an ounce from Monday's close. That's the highest since March 1981.

Tang, director-general of the central bank's Research Bureau, said foreign reserves were expected to top $800 billion at the end of 2005, up from $769 billion when the last quarterly report was issued in September, according to Dow Jones.

© 2006 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

© 2006 MSNBC.com

URL: http://www.msnbc.msn.com/id/10786898/from/RSS/

[HenryTo]

Aston,

My position is that the dollar bull market will remain intact this year - possibly some early weakness early this year (as it continues to "digest" the gains from last year) and then another move up later in the year.

Gold is scaring me right now - given the huge daily moves in the gold futures. Doesn't help that the Commericals are now 80% short either.

Good luck,

Henry

[aston]

Assuming that the Chinese are not lying, what does this mean for gold and the dollar?