to building up stockpile of gold
by Alfred Cang and Tom Miles, Reuters
China revealed on Friday that it had secretly
raised its gold reserves by three-quarters since
2003, increasing its holdings to 1,054 tons - or
a pot worth about US$30.9-billion - and
confirming years of speculation it had been
Hu Xiaolian, head of the State Administration of
Foreign Exchange, told Xinhua news agency in an
interview that the country's reserves had risen
by 454 tons from 600 tons since 2003, when China
last adjusted its state gold reserves figure.
The confirmation of its surreptitious
stockpiling is likely to fuel market talk about
Beijing's ability to buy secretly and its
ambitions for spending its nearly US$2-trillion
pile of savings. And not just in gold: copper
and other metals markets are booming thanks to
China's barely-visible hand.
Speculation has gathered speed over the last
year, since the tumbling dollar has threatened
to weaken China's buying power - and give it yet
more reason to diversify into gold, oil and
Gold prices jumped on the news of Chinese buying
and were up more than 1% on the day at US$912.05
an ounce at 0715 GMT. By a Reuters calculation,
China's holding of gold would be worth around
US$30.9-billion at current prices.
That accounts for only about 1.6% of China's
total foreign exchange holdings and is little
more than one-tenth of the value of the U.S.
gold reserve, the world's biggest. It also means
gold has slipped as a share of China's total
reserves from about 2%, based on end-2003
Only six countries hold more than 1,000 tons,
and China is ranked fifth, having leap-frogged
Switzerland, Japan and the Netherlands with its
However, the International Monetary Fund and the
SPDR Gold Trust exchange traded fund are even
bigger, leaving China with the world's
seventh-biggest pot of gold.
Several gold market participants said they
thought China had bought on the international
market, helping to absorb hundreds of tons sold
off by central banks and the International
Monetary Fund in recent years.
"China has been buying via government channels
from South Africa, Russia and South America,"
said Ellison Chu, director of precious metals at
Standard Bank in Hong Kong.
But Hu said the increase in China's stocks was
achieved by buying on the domestic market and
from domestic producers.
China is the world's largest gold producer and
does not permit exports of gold ingots, only
jewelry, leaving plentiful supplies for the
China produced 282 tons of gold last year,
meaning the state bought around one quarter of
domestic production, assuming 454 tons increase
in state purchases were spread out over the six
years since China last reported a change in its
Despite the rumors, buying by the state was
partially obscured by soaring demand for gold as
an investment, especially after the bursting of
the Shanghai stock market bubble last year.
Investment demand in China rose to 68.9 tons
from 25.6 tons in 2007. But that was still less
than one third of retail demand in India, where
total bullion consumption topped 660 tons last
Hu said China recently reported the change in
its gold holdings to the International Monetary
Fund and would include the latest change in
central bank reports and balance of payment
She did not say when China notified the IMF.
Although gold rose after Hu's comments were
published, the price move was not a huge one for
the highly liquid market. Prices had jumped by
US$13 in the space of an hour on Thursday.
Gold market participants said the news signaled
likely further buying by China.
"The comments indicate that China will buy more
gold as reserve to improve its foreign reserve
portfolio. This is a trend," said Yao Haiqiao,
president of Longgold Asset Management.
Hou Huimin, vice general secretary of the China
Gold Association, said China should build its
reserves to 5,000 tons.
"It's not a matter of a few hundred, or 1,000
tons. China should hold more because of its new
international status, and because of the
financial crisis," he said.
"The financial crisis means the U.S. dollar
value is changing fast, and it may retreat from
being the international reserve currency. If
that happens, whoever holds gold will be at an
The European Central Bank recommends its member
banks hold 15% of their reserves in gold, but
among Asian nations the percentage is far
smaller, said Albert Cheng, World Gold Council
managing director for the far east.