May 8, 2009 (China Knowledge) - China may purchase more gold as part of its effort to diversify its huge foreign exchange reserves, which are the largest in the world, sources reported on Thursday, quoting gold analysts.

Paul Atherley, managing director of Leyshon Resources in China, said that he believes China will make gold purchases since its gold reserves are very small compared with its economy and considering the increasing significance of its currency.

China will raise its gold reserves mainly through purchases from domestic producers to avoid inflating international gold prices, according to analysts.

By the end of last year, China's gold reserves had reached 1,054 tons, up 75% or 454 tons from 2003, according to statistics released by the State Administration of Foreign Exchange. The gold reserves account for only about 1.6% of the country's foreign-currency reserves, far below the global average of 10.5%.

The nation's gold holdings are expected to increase in the long term to as much as 5,000 tons, said Hou Huimin of the China Gold Association.

By the end of March, China's foreign exchange reserves had climbed from US$1.946 trillion last December to US$1.954 trillion, most of which is denominated in U.S. dollars, according to an earlier report from China