MTECHTIPS

MTECHTIPS:-Should China buy more Gold? No!

China is having the fifth largest gold reserves in the world. At about 1.7% of its total foreign exchange reserves of $3.3 trillion, the 33.9 mn ounces of gold that it owns compares in a pale fashion to 75.4% of US and 72.3% of Germany.The question here is should China be buying more gold?Not necessarily is the answer given by Campbell R. Harvey, professor at Duke University 's Fuqua School of Business and Claude B.Erb, Managing Director at First Chicago NBD Investment Management Company.Gold as an asset may be an inflation hedge in the long term, but not in the short term, their research paper Golden Dilemma updated in September this year says. They point out that gold becomes useful in the event of hyperinflation; but despite the QE drives the global inflation is not driven to these levels. According to the paper, it is a “good bet” that QE3 will not result in inflation in short-term even as the price of gold would rise.