Unlike other large economies China has relatively modest gold reserves. The share of gold in China’s total reserves is not more than 2%. Currently China owns about 1,000 tons of gold about as much as Russia has but this is only for now.
As it becomes clear from the Central Bank of China’s report, which was published earlier this month, the Chinese government does not rule out the second wave of the economic recession in the world. Amid such gloomy forecasts Beijing’s confidence in foreign currency is weakening. Fluctuation of euro and dollar rates which is typical of the crisis period does not encourage Chinese people. For this reason China has begun to pay attention to gold, which proved its reliability. In the last 16 years, the price of troy ounce of gold rose in average by 10%. That is why China wants to add another 5,000 tons of gold to its current 2,000 tons.
If Beijing really starts to buy gold bars within the year it will soon provoke a drastic hike of gold prices. However, according to Anastasia Sosnova, analyst with the Russian Capital bank, in practice it will take time to buy 5,000 tons.
"5,000 tons of gold is the amount, which is comparable with 2-year volume of global gold production. It might take china more than 8 years to buy this amount."
Some experts suspected that China’s intention to significantly increase its gold reserves was aimed at devaluation of the US dollar. The Celestial Empire is currently the main creditor of the US. China holds in trillions of dollars and if it tries to convert part of these reserves into gold this will inevitably lead to devaluation of dollar on global financial markets.
Again not all the analysts tend to forecast this set of circumstances. Some of them believe that China will be buying gold gradually without doing any sensitive damage to the American currency because otherwise Chinese people will also suffer from it, Sergey Sanakoyev, head of the Russian Chinese center of trade and economic cooperation, says.
"It is likely that China will support dollar by some other actions. The collapse of dollar is not beneficial for Chinese people at all because it may lead to devaluation of part of the reserves they are holding in dollars. My approximate estimation of possible losses in this case is between $500 billion and $1 trillion."
Whatever effect China’s gold maneuver has on dollar and other currencies all the experts agree this will inevitably lead to the increase of gold prices.