Chinese Gold Cheaper than IMF's
Source: Reuters, Zhou Xin and Tom Miles (11/5/09)
"China is the world's biggest gold producer, so there's no urgency for us, as there is for India…"
Asked whether China should emulate India, which last month bought 200 tons of IMF gold at an average price of $1,045 an ounce, Li Yang told reporters on the sidelines of a financial forum: "China's gold is much cheaper than that."
Li, who used to be a member of the PBOC's monetary policy committee, is now a senior researcher at the Chinese Academy of Social Sciences.
China, the world's top producer and consumer of gold, is widely assumed to still be buying up domestic gold production after revealing in April that it held 1,054 tons of gold, a jump of 76% from its last word on the subject six years previously.
And its colossal buying power—$2.27 trillion in foreign exchange reserves at the end of September—makes matching India's $6.7 billion IMF purchase look trifling.
Many market watchers see China buying IMF gold as likely, if not inevitable, because of its desire to diversify its financial reserves away from U.S. dollars.
"China is the world's biggest gold producer, so there's no urgency for us, as there is for India, to snap up big volumes whenever they come onto the global market. It's cheaper for us to buy gold from the Chinese market, but it doesn't help diversify our huge foreign exchange reserves," said the official, who declined to be identified.
"To diversify our portfolio, we should spend dollars on things like gold. But the catch is that even if China bought half the world's annual gold supply, it would only cost a few tens of billions of dollars, which is tiny compared to China's huge reserves. . ."