According to data released by the Peoples Bank of China (PBOC), gold reserves in that country jumped by 100 tonnes (3.2 million oz.) in December 2002.
The increase comes at a time of weakness in the U.S. dollar and indications that certain governments may be increasing their euro holdings (for example, Canada’s recent decision to use the proceeds from gold sales to buy euro securities). Indeed, it has been suggested that this could be the harbinger of things to come.
However, instead of a tectonic shift in official attitudes towards gold, the PBOC appears to be pursuing a policy of maintaining a minimum level of gold in its reserves. As China’s foreign currency reserves have increased, gold’s level in its total reserve has fallen — from 2% at the beginning of 2002 to 1.8% in November. The increase takes that ratio back above 2%, to 2.2%. The last increase in China’s gold holdings (3.4 million oz. at the end of 2001) took that percentage from 1.7% to more than 2%.
Therefore, it is unlikely this represents a dramatic shift in official attitudes towards gold. What is more interesting the question as to where the gold came from? Did China purchase this gold in the open market during December? If so, this might explain the US$29 (9.1%) rise in the gold price during that month. Might China have used gold purchases from U.S. producers to reduce its trade surplus with the U.S. (as Taiwan did in the 1980s)?
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