China Will Not be Adding to Gold Reserves but Says Gold Not a Bad Asset

Yi Gang, China's head of the State Administration of Foreign Exchange also know as "SAFE" told reporters US Treasuries remain important to China but they would not be adding to their gold reserves. Yi Gang said:

"The U.S. Treasury market is the world's largest government bond market. Our foreign exchange reserves are huge, so you can imagine that the U.S. Treasury market is an important one to us."

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Gold currently $1,117 per oz.

Reuters reported:

Speaking during the annual session of parliament, Yi expressed the hope that China's presence in the U.S. Treasury market would not become a political football. China, he stressed, was not in the game of short-term currency speculation.

"It is market investment behavior, and I don't want it to be politicised," he said. "We are a responsible investor, and we can surely achieve a win-win result in the process of investing."

The Wall Street Journal said China's gold reserves were 1,054 tonnes at the end of 2009. A metric tonne is a unit of mass equal to 1,000 kg (2,204.6 US poundslb) or approximately the mass of one cubic metre of water at four degrees Celsius.

Yi Gang disapointed gold investors by saying he didn't think gold was a great investment for those with a 30-year time horizon.

"Gold is not a bad asset, but currently a few factors limit our ability to increase foreign-exchange investment in gold."

and

"It is, in fact, impossible for gold to become a major investment channel for China's foreign exchange reserves. I have 1,000 tonnes now, and even if I doubled that holding, according to current prices, that would be about $30 billion."

The Wall Street Journal article continues:

Currently, China is the world's sixth largest official holder of the metal at 1,054 metric tons, data from the World Gold Council from the end of 2009 shows.

That accounts for 1.5% of the country's total reserve holdings, a small amount compared with the largest gold holder, the U.S., where gold holdings account for 68.7% of total reserves.

There is no way gold could be a meaningful percentage enough to count.

China doesn't disclose the exact composition of its reserves but the consensus is about two-thirds are invested in dollar backed assets. Yi Gang said SAFE has diversified its holdings beyond the dollar with investments in the euro, yen and some emerging market currencies.

"The foreign exchange reserves are mainly invested in bonds issued by governments and government agencies of the developed and developing countries with high credit ratings, assets issued by companies and international organisations, funds and so on."

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