Beijing: China will be prudent in adding gold to its official reserves, wary that any move to buy the precious metal would only serve to drive its price higher, the country's top foreign exchange manager said on Tuesday.
Yi Gang, head of the State Administration of Foreign Exchange, said that while gold was "not a bad asset", it would never become a big part of China's overall investment portfolio.
"The international gold market is very limited. If I purchase gold on a massive scale, it will definitely push up global gold prices," Yi said at a news conference on the sidelines of China's annual parliament. "So, as for suggestions from many friends that we should increase gold holdings, we will give prudent consideration to this, according to market conditions."
Sudden spree
Gold fell $3 (Dh11) in the hour after Yi spoke, later paring losses to reach $1,122 per ounce, as many market participants had already discounted the chances of a sudden gold spree by China.
Many investors have wondered whether China might buy 191.3 tonnes of gold being offered for sale by the International Monetary Fund, after India bought 200 tonnes in November.
"We have been saying that whilst it's clearly the case that it's sensible for China to buy some gold, we think it's more likely they'll be doing it quietly in the open market as opposed to taking a large chunk of the IMF gold," David Barclay, commodities analyst at Standard Chartered.
State media have reported the country is unlikely to do so, partly for fear of fuelling market speculation, and Barclay said he thought it was largely a question of price. "If we have gold correct down below $1,000 then I think it's more likely, given that they've said prices below $1,000 are more reasonable and also it would be lower than the $1,045 level that India bought at. There is that rivalry between the two countries."
The Chinese government wowed the gold market last year by revealing it had increased its holdings of the metal to 1,054 tonnes from 600 tonnes in 2003. Buying the IMF gold might cause prices to spike, Barclay said.
"Prices haven't really corrected that much despite the drop in the euro, and we've seen investor positioning turn a bit more positive. It wouldn't take much, if China did come out, to really ignite the market, and I don't think that's something they want to do."
China's $2.4 trillion in foreign currency reserves and its relatively small gold holdings have fuelled speculation the country is continuing to buy.
