Reply #55: China's big gold buy barely kept pace with forex

[Ghost Dog]

April 24 (Reuters) - The big surprise in China's revelation on Friday that it has secretely added over 450 tonnes of gold to its foreign reserves over the past six years may be the fact that it hasn't bought far more than that. Now, many analysts say the rare public disclosure may be a prelude to Beijing accelerating its purchases -- possibly from big government agencies or central banks -- as it worries about the erosion of its $2 trillion cash pile.

In the first public comment on top-secret gold holdings in years, Hu Xiaolian, head of the State Administration of Foreign Exchange (SAFE), told Xinhua news agency that the country's reserves had risen by 454 tonnes from 600 tonnes since 2003. He said the gold had been purchased from domestic production.

The figure confirmed what many gold bugs have suspected for years -- that Beijing has been quietly amassing reserves. The surprise is actually how conservative its approach has been. As a proportion foreign exchange reserves, which have risen five-fold over the same period, gold now stands at a tiny 1.6 percent, versus 1.7 percent in 2003, according to Reuters calculations, suggesting Chinese disenchantment with the dollar has yet to significantly influence its buying patterns.

But things may be changing, and a quickening pace of gold buying would lend considerable support to prices that have threatened to stall at around $900 an ounce -- unless, as many analysts expect, it buys the gold through private channels. The IMF has approved selling just over 400 tonnes of its gold. 'Central banks will go straight to China rather than mess about or spook the market. China will be a ready buyer and pay a decent price,' said Jonathan Barratt, Managing Director of Commodity Broking Services in Sydney.

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The announcement that Beijing was sitting on 1,054 tonnes of gold bullion, up 75 percent in the past six years, pushed China up to the fifth place in the table of gold-holding nations. For a graphic showing the world's biggest gold holders: - graphic - In some regards, the sum is sizeable, about the same amount that Europe's central banks and the International Monetary Fund sell each year as they gradually and publicly destock. By other measures the sum is paltry. The SPDR gold trust , the biggest exchange traded fund, saw its holdings rise by the same sum over just six months.

By Reuters calculation, China's holding of gold are worth around $30.9 billion at current prices, while the U.S. gold mountain is valued at $238 billion. The United States holds 79 percent of its foreign currency reserves in gold. 'We recommend our clients hold 5 percent of their investments in gold. On that basis China has another 3,300 tonnes to buy,' says ANZ's senior commodities analyst Mark Pervan. And buying more gold would fit well with Beijing's publicly stated aim to build a bigger inventory of all raw materials, which would also reduce its exposure to the greenback.

/... http://uk.biz.yahoo.com/24042009/323/china-s-big-gold-buy-barely-kept-pace-forex.html