China gold fund manager sees potential for rally

By Alfred Cang

SHANGHAI (Reuters) - After doubling his money in the gold market in just six months, Wang Weilie, one of China's leading gold fund managers, believes another surge in gold prices is likely in the next few years as global inflation escalates and the dollar sags.

Wang, who manages nearly 2 billion yuan ($290 million) invested in the Shanghai Gold Exchange and the spot gold market for his own and clients' accounts, said gold could be a useful hedging tool and worthwhile investment in the next decade for the Chinese, who traditionally think of gold mainly as jewellery.

"I have bought and stored several hundred kilograms of gold bars but I do not wear any gold jewellery," Wang, wearing jeans and a T-shirt, told Reuters in the Shanghai office of a business partner who manages the country's largest gold trust.

He also stressed the need for a strategic approach to gold investing.

"We Chinese should be 'gold dragons', not 'gold bugs' who were bullish on gold but suffered losses in past decades," he said.

Wang and his partner, Yao Haiqiao of Longgold Asset Management, noted that while they are relatively new to gold investing, they were able to catch one the market's biggest rallies in its history.

Spot gold prices XAU= surged to a record $1,030.80 per ounce on March 17, as investors fled risk in the credit markets and took advantage of a weakening dollar.

Since then, gold prices have retreated and were trading around $870 per ounce on Friday.

CASHING IN

Wang said he cashed in his gold positions in March, when the price reached his investment targets.

He built up the positions in Shanghai's gold forwards market from September, when international prices hovered between $660 and $730 per ounce, after cashing in his shares in Zhongjin Gold (600489.SS), which had risen to 140 yuan from 7 yuan in 2005.

He said gold had the potential to surge again, arguing that the dollar was due for further declines, while stocks, property and other assets were overvalued, making gold more attractive as a store of wealth.

"We have reason to believe that gold will hit $2,000 in coming years after it broke the $1,000 level," he said.

Some analysts are skeptical about gold's potential to rally, however, citing weak demand from jewellery makers and industrial users. The Indian market, which accounts for 20 percent of world demand, is expected to remain sluggish.

And it is by no means a sure bet that the dollar will weaken. Goldman Sachs (GS.N) economists expect that, over a 12-month period, the currency will begin to strengthen as the U.S. economy recovers.