Gold’s recent downward trend may have ended last week after gold closed moderately higher for the week (gold +0.03% and silver +1.75%). The performance was impressive considering the continuing steep declines in stock markets (Nasdaq , DJIA, S&P down 6.1%, 6.17% and 7.03% respectively).

Gold’s outlook remains extremely positive especially as big money interests are once again realizing the safe haven attributes of the yellow metal. Both the Financial Times and the Wall Street Journal reported (see commentary on www.goldassets.co.uk ) how large investors including hedge funds are buying gold as they believe that the central banks huge money printing will lead to significant inflation in the coming months that will see paper currencies depreciate in value.

In this climate, western central banks are increasingly reluctant to sell their gold reserves and non western central banks with large dollar reserves are looking to diversify into gold. Zhang Guobao, Head of the Chinese National Energy Administration, said today that China should use part of its nearly $2 trillion in foreign exchange reserves to buy more gold, oil, uranium and other strategic commodities.

His statement was echoed by similar calls by Fu Jun, Vice Chairman of All-China Federation of Industry & Commerce who said that China should invest and diversify the world’s largest stockpile of forex reserves in gold, rather than in U.S. Treasuries to seek higher returns.

“We don’t need to buy more Treasuries as the returns are low, whereas if China buy copper and gold, the annual returns could be as high as 10 percent,” Fu said.

With supply and demand already tight, official Chinese demand could propel gold to far higher prices.