China diversifing US$ in favor of gold?BEIJING (XFN-ASIA) - China is likely to diversify its foreign exchange holdings of more than one trln usd away from US dollar denominated instruments in favor of gold, Numis Securities said.
"China is estimated to hold about one pct of its reserves as gold and there is speculation that the Chinese central bank could raise gold to five to six pct of total reserves over the next 15 years. The World Gold Council estimates that China holds around 600 tons of gold which at today's market price is worth 12.2 bln usd," Numis said in a research note.
It noted that People's Bank of China governor Zhou Xiaochuan had said recently that the government is seeking alternative instruments to US dollar denominated assets, which has contributed to an improvement in the gold price in the last week.
China's International Finance News quoted Zhou as saying the country has a very clear plan to diversify its reserves, though he later denied that China has any plans to accelerate this diversification.
"If assuming China's economy were to remain flat and the one trln usd of reserves were to include five pct gold, then this would require gold reserves worth 50 bln usd. At today's pricing this would mean that over a 15-year period China would need to purchase 1,857 tons of gold, or around 124 tons per year," Numis said.
China's gold production has risen rapidly over the past few years and it now ranks in fourth place having produced 224 tons of gold last year, behind South Africa, Australia and the US.
andrew.pasek@xinhuafinance.com
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