China’s big gold buy barely kept pace with forex

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April 27, 2009 9:04am NYSE:GLD

goldSINGAPORE, April 24 – The big surprise in China’s revelation on Friday that it has secretely added over 450 tonnes of gold to its foreign reserves over the past six years may be the fact that it hasn’t bought far more than that.

Now, many analysts say the rare public disclosure may be a prelude to Beijing accelerating its purchases — possibly from big government agencies or central banks — as it worries about the erosion of its $2 trillion cash pile.

In the first public comment on top-secret gold holdings in years, Hu Xiaolian, head of the State Administration of Foreign Exchange (SAFE), told Xinhua news agency that the country’s reserves had risen by 454 tonnes from 600 tonnes since 2003. He said the gold had been purchased from domestic production.

The figure confirmed what many gold bugs have suspected for years — that Beijing has been quietly amassing reserves. The surprise is actually how conservative its approach has been.

As a proportion foreign exchange reserves, which have risen five-fold over the same period, gold now stands at a tiny 1.6 percent, versus 1.7 percent in 2003, according to Reuters calculations, suggesting Chinese disenchantment with the dollar has yet to significantly influence its buying patterns.

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