China boosts gold reserves 1% in August

Singapore (Sept 30)  China boosted central bank gold holdings 1 percent as the country that rivals India as the world’s largest bullion consumer seeks to diversify its foreign exchange reserves.

The hoard rose to 54.45 million troy ounces in August from 53.93 million ounces a month earlier, according to data released by the central bank on Wednesday. China ended six years of mystery surrounding the holdings in July, revealing a 57 percent jump since 2009 and overtaking Russia to become the country with the fifth-largest stash.

China has joined Russia and Kazakhstan in increasing gold assets and is reporting its position monthly, showing a shift toward greater transparency as the country improves data quality, increases its presence in commodities trading and promotes the international role of the yuan. The nation devalued its currency last month and announced a move to a more market- driven exchange-rate mechanism.

“It’s just a standard diversification,” James Wilson, a Perth-based analyst at Morgans Financial Ltd., said on Wednesday. “But it’s an inordinately small amount for the Chinese to be investing in at the moment, and that’s why we say that there should be a much bigger investment in gold from the Chinese purely because of the size of the economy.”

China still has only about 1.6 percent of its foreign reserves in gold, compared with 73 percent for the U.S., 67 percent for Germany and 65 percent in France and Italy, World Gold Council data show.

Bullion remains a large part of many central banks’ assets, decades after they stopped using it to back paper money, and nations have expanded holdings in the past few years, a reversal from two decades of selling.

China’s central bank said on July 17 that it had boosted bullion assets to 53.32 million ounces, or about 1,658 metric tons, from 1,054 tons in 2009, when it last updated the figures. It announced a further increase for July. The U.S. has the biggest reserves at 8,133.5 tons, council data show.

“China’s accumulation of physical gold is likely to continue,” Jordan Eliseo, chief economist at trader Australian Bullion Co. in Sydney, said by e-mail before the data were released. “At present, they have an extremely low allocation to gold as a percentage of forex reserves, especially compared to many developed market nations.”

Russia more than tripled its hoard since 2005 and Kazakhstan has raised its holdings every month for almost the past three years. While central banks have been buying gold, investors have cut their assets in exchange-traded funds backed by bullion to around the lowest level since 2009.

Gold prices have lost about 40 percent from a record in 2011 and are trading near their lowest level in more than five years. The metal was at $1,125 an ounce on Wednesday.

Source: Bloomberg