By Jamil Anderlini in Beijing and Javier Blas in London
Published: April 25 2009 03:00 | Last updated: April 25 2009 03:00
China has quietly almost doubled its gold reserves to become the world's fifth-biggest holder of the precious metal, it emerged yesterday. The move signals the revival of bullion after years of fading importance.
Gold rose to a three-week high above $910 an ounce after Hu Xiaolian, head of the state administration of foreign exchange, which manages the country's $1,954bn (1,475bn, £1,331bn) reserves, revealed yesterday that China had 1,054 tonnes of gold, up from 600 tonnes in 2003. The news could now spark interest among other central banks.
John Reade, a precious metals strategist at UBS, the bank, said: "When the largest holder of foreign exchange reserves discloses an increase in gold holdings, other countries may decide to think more carefully about underweight gold -positions."
However, it raises questions about the future direction of Beijing's foreign reserves policy. Ahead of the G20 summit in London this month, China suggested global reliance on the US dollar as a reserve currency should be reduced. China has been diversifying away from the dollar since 2005, when it broke the renminbi's peg to the US currency and officially marked it to a basket of currencies, but it still holds more than two-thirds in US dollar--denominated assets by most estimates.
As its trade surplus and forex reserves ballooned in recent years, Beijing continued to buy US Treasury bonds while raising the proportion of purchases of other currencies and of gold.
China's accumulation of gold has taken place as European central banks have gradually cut back gold sales after a 1999 agreement to prevent the market from being flooded after prices were dragged sharply lower when the UK decided to sell part of its gold reserves.
"China's announcement signals a broader shift in central banks' attitude towards gold," said Philip Klapwijk, chairman of GFMS, a precious metal consultancy. Suki Cooper, a gold analyst at Barclays Capital, said China's move was "re-igniting gold's relevance as a monetary asset".
Since 1999, central banks in Europe have sold large amounts of gold, investing the proceeds in bonds. But in the last two years they have curtailed their sales while central banks outside Europe became net buyers.
Paul Atherley, managing director of Leyshon Resources, said that even after its purchases China had only a very small percentage of its reserves in gold. "Those [gold] holdings are still too low in terms of the size of its economy and the growing significance of its currency," he said.
Russia has been an active buyer, following Beijing's similar pattern of purchases from local miners. China last year became the world's largest producer of gold, outranking South Africa.
Since the financial crisis began, investors have piled record amounts of money into gold, boosting prices, at their peak to more than $1,000 an ounce. Gold hit a low of $250 an ounce a decade ago, when central banks started selling.