China's gold reserves jump, making nation No. 5 holder

By Chris Oliver, MarketWatch

Last update: 9:14 a.m. EDT April 24, 2009

The increase makes China the world's fifth-largest holder of gold, just ahead of Switzerland, and among the six nations plus the International Monetary Fund that have reserves of more than 1,000 metric tons.

Hu said that China's gold reserves had risen by 454 metric tons since 2003 and that the total was being reported to the IMF per the organization's rules.

The comments are China's first public acknowledgement in more than five years that its gold reserves had increased.

The new figure is 76% higher than the 600 metric tons reported at the end of March, a level that had been unchanged since December 2002.

Although Hu did not elaborate on where China had sourced the additional bullion, her comments were interpreted as meaning they came from domestic sources and may included refining of scrap metal.

Wire reports from the region suggested some of the bullion could have come from refining existing holdings that were not of sufficient quality to be counted among official reserves.

Analysts said China's bullion buying reflects efforts to diversify its nearly $2 trillion stockpile of foreign-exchange reserves.

"Chinese officials have been increasingly vocal about their concern on the U.S. dollar and the U.S. bailout policies of late, and have actively been seeking to diversify into other assets, especially commodities," said Martin Hennecke, an associate director with Tyche Group in Hong Kong.

Traders in Hong Kong said the some of the additional reserves were likely acquired on the Shanghai gold market during January and February. The physical market remained well-bid by an unknown buyer despite bullion prices spiking to levels that normally cooled demand, they said.

Purchases were made in Shanghai, traders said, in an effort to absorb domestic production and lessen the impact of bullion prices on global markets.

"The public nature of today's disclosure casts doubt on whether China is aiming to buy gold on the international market," J.P. Morgan analysts wrote in a note e-mailed to reporters late Friday

Traders also say the gold was accumulated systematically over a number of years.

Last year China ranked as the world's largest gold producer with 12.2% of world output, equivalent to 288 metric tons. The U.S. ranked second with a 9.9% share, or 234 metric tons.

Spot gold recently was up $3.40 at $910 an ounce.

In a separate release Friday, China reported its foreign-exchange reserves totaled $1.954 trillion at the end of March, up from $1.946 trillion at the end of December.

Among other data out Friday, the State Administration of Foreign Exchange said the nation's current-account surplus jumped to $426.1 billion in 2008, up from $371.8 billion in the prior year.

The gains were underpinned by surpluses from the first half of the year as the financial and capital accounts both swung to deficits in the second half, the regulator said.