There is a whiff of coordination to a couple of published comments suggesting the country should convert some of the dollars it is holding in its foreign-exchange reserves into gold to avoid losses from a weakening dollar. Shao Fenggao, an official at China Construction Bank, writing in China Business News, echoed a similar sentiment expressed by Meng Qingfa, a researcher at the China Chamber of International Commerce, in the International Business Daily, a newspaper affiliated with the Ministry of Commerce, whose minister recently said dollar issuance in the U.S. had gotten “out of control”, exporting inflation to China.
China’s foreign-exchange reserves are the world’s largest. They hit a record $2.65 trillion at the end of September, but gold accounts for less than 2% of the total, an extremely low percentage by global standard. In raw terms, China owns 1,054 tonnes of gold, as best is known; the U.S. holds 8,133 tones. If China did up its gold holdings, it would be doing so after a bull run that drove prices of the metal to new records, but if it did so on any scale, say to match America’s holding, as some officials have suggested, it would reinvigorate the gold bugs who have taken a breather recently. The China effect would be just the same on gold as on any other commodity.
Another straw in the wind of the changing attitude towards gold is the easing of import controls on gold bullion last month, letting Chinese investors buy more on global markets. Beijing used to fret that too much gold coming into the country would mean a drain on its stocks U.S. dollars. Those are less valuable assets to preserve these days, and will only be increasingly so as the yuan strengthens against the dollar. Switching foreign-exchange reserves into gold would also be a move in the direction of strengthening the yuan’s credibility as a global reserve currency — a double reason for buying gold.