International | Apr 20 2006
Since figures released in February showed China is now the world’s largest holder of foreign exchange reserves, there has been increasing speculation it would explore ways to diversify its holding out of US dollars and into alternative asset classes.
Among the alternatives, gold has been at the top of most experts’ lists, but recent figures from the Central Bank of China show there has been no move to increase its holding of the precious metal. Not yet, the hopeful would add.
At the end of March the Central Bank revealed it was holding 19.29m ounces of gold, an amount unchanged since December of 2002.
There are two possible implications of this – the first is the Chinese are likely to have been increasing their holdings of the euro and the currencies of other major trading partners as a way to gain some diversification of reserves.
The second is the run in gold prices to more than US$600/oz may be more sustainable than many experts suggest, as with China’s Central Bank indicating further diversification of its reserves remains an objective there remains the potential for underlying buying support in the gold market if the Chinese do in fact move in that direction.
Xia Bin, director general of the government-backed Development Research Centre, recently argued the purchase of additional gold reserves was an appropriate way of diversifying the nation’s reserve holdings, though Central Bank officials have suggested there is no correlation between the level of foreign exchange reserves and the level of gold reserves.
