Reports indicate that China is the second largest purchaser of gold. Over the last six years, the country has amassed a wealth of gold and, according to most analysts and traders, the country will continue to do so well into the future. The People’s Bank of China stated that the country owns 1658 metric tons of gold and has purchased about 100 tons of gold each year since 2009. Some analysts report that China will likely own 5000 tons of gold in its stockpile. With 1658 tons of gold, this makes the nation the fifth largest stockpiler of the precious metal behind the U.S., Germany, Italy, and France.
What Is China Doing With Its Gold?
While China hasn’t discussed its specific strategies and methods clearly, and this is the first time in six years that the country has discussed its purchases, most analysts believe that they will continue to purchase and stockpile gold rather than sell it off. That is a key indicator of the value of the precious metal going forward and also can give investors some idea on how to hedge their own investments.
Data does indicate, though, that China is using the metal to help diversify its foreign exchange reserves. This may be due to the fact that policies are pushing for the yuan, which is the Chinese currency, to be added to the International Monetary Fund’s basket of currencies. China’s gold purchasing continues even as gold prices have fallen from record highs in 2011 to the current five-year low indicating the country’s desire to purchase low and maintain its inventory.
How Much Gold Is It Really Buying?
Reports indicate that the purchase of 604 tons of gold has occurred since 2009 by China, which is only behind that of Russia’s purchases. It equals about two percent of annual global demand for the precious metal. Overall, these purchases are valued at about $26 million based on average prices over that timeframe.
The Peoples Bank of China called its investments a “special asset.” While it doesn’t define what that is specifically, most experts believe that the country is not using gold as a fixed percentage of foreign reserves.
China purchases most of its gold from within its borders. It’s the largest producer in the world and really only competes with India in terms of gold consumption. More so, the Shanghai Gold Exchange, which opened in 2002, is the largest physical bullion marketplace in the world.
China’s investment in gold is important to note. The country seems to be buying gold at a rapid pace while the value of the precious metal is low. It appears to be a solid financial strategy and does not necessarily have to be one relegated solely to large countries. It is also a solid investment strategy for many people as well. In short, it could provide an opportunity to buy when the value is low and then sell high, increasing value.
Investors state that the country is unlikely to stop buying and, as it becomes more sophisticated, China’s reserves are likely to grow at a rapid pace.
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