Rumours about this had been running for a number of years. We already knew China wanted the build the ‘largest gold reserves, in the shortest possible time’. But now we know ‘storing gold by the people’ is part of their strategy. Proof of this we found on the website the People’s Bank of China in an interesting Q&A regarding China’s gold strategy. But when we revisited the page recently to write this blog the text has disappeared. Here the most interesting part of the Q&A which we have filed fortunately.
A: The gold reserve has been an important element of international reserve diversification used by governments. Most central banks international reserves include gold, so are we. Gold is a special asset with multiple attributes such as financial and commodity-wise, and together with other assets it helps regulate and optimize the overall risk-return of our international reserves portfolio. From the perspective of long-term and strategic perspective, if necessary, we dynamically adjust international reserves portfolio to ensure its safety, liquidity and return on investment.
6: In recent years, international gold prices are volatile. When and from which channel is the current round of gold holdings added to the reserves? Will the future see more holding?
A: Like prices of other commodities and financial assets, the international gold prices also has its ups an downs. Over the past few years, gold prices has climbed to a record high, then gradual decline. Based on our valuation and price changes analysis, under the premise of not influencing the market, we use a variety of channels both at home and abroad, and have gradually accumulated this gold reserves. Channels include domestic gold purification, production and stocking up, trades at home and abroad, etc.
Gold has a special risk-return characteristic, and at particular time is a good investment choice. But the capacity of the gold market is small compared with the scale of China’s foreign exchange reserves, and if a large number of foreign exchange reserves is used to buy gold within a short period, it will easily affect the market. At present, China has become the world’s largest gold producer, and is also a big gold consumer. “Storing gold by the people” has been the current situation. We need to continue considering in the future our domestic demand for private investment and international reserve need and be flexible.
This is further confirmation of China’s wish to become the central player in the gold market. Earlier in a speech September 18, 2014, Governor Zhou Xiaochuan, while attended the launch ceremony of the International Board of the Shanghai Gold Exchange, explained The launch of the International Board of the SGE would help to facilitate the RMB-denominated price discovery function in the gold market, This means it is China’s wish to move this price discovery function from the COMEX, US futures markets in Chicago to the SGE. The Chinese seem to be well aware of the US paper gold game.