China revealed on Friday that it built up its gold reserves by three quarters since 2003, making it the world’s fifth largest holder of bullion...Hu Xiaolian, head of the State Administration of Foreign Exchange (SAFE), told the Xinhua news agency in an interview on Friday that the country’s reserves had risen by 454 tonnes from 600 tonnes since 2003, when China last adjusted its state gold reserves figure. The value of its total holding was reported as $31bn...Just in time, long-awaited IMF gold sales to fund its operations may find willing Chinese official buyers:
China now holds 1,054 tonnes of gold and has overtaken Switzerland, Japan and the Netherlands to become the fifth largest official holder of gold.
As the world’s largest gold producer, China might decide to source the supplies from local mines and through refining scrap metal. The International Monetary Fund has indicated that it wishes to sell 403.3 tonnes of its gold holdings which has raised speculation that China might try to do a deal with the IMF...And, of course, the bottom line:
Virtually all major official sector sales have been restricted under the Central Bank Gold Agreement since 1999 but the IMF is not a signatory to this agreement so the proposed sale might provide an opportunity for China to boost its gold holdings rapidly.
Hou Huimin, vice general secretary of the China Gold Association, said China should build its reserves to 5,000 tonnes. “It’s not a matter of a few hundred, or 1,000 tonnes. China should hold more because of its new international status, and because of the financial crisis,” he said. “The financial crisis means the US dollar’s value is changing fast, and it may retreat from being the international reserve currency. If that happens, whoever holds gold will be at an advantage.”Yes, yes--$31 billion is a comparative pittance to its dollar-denominated loser asset holdings (via depreciation and near-zero yields; please don't get me started on "investments" in US banks). However, China could be buying gold on a more pronounced scale going forward. That would be a very bullish sign for gold bugs. Perhaps in response, the dollar is taking a beating right now from even the "mighty" pound.
As I always like to say, if you're gullible enough to hold dollars, then you have no one else to blame but yourself when Uncle Sam's barber eventually comes around and gives you a haircut. In its own way, even China may be gradually weaning itself off green riffraff. Nobody likes being played for a fool, and so far, China has been the biggest one of them all.
