China Set to Become World’s #2 in Gold Reserves?

China should add to its gold reserves to “ensure national economic and financial safety, promote yuan globalization and as a hedge against foreign-reserve risks,” according to Gao Wei, an official from the Chinese Department of International Economic Affairs of Ministry of Foreign Affairs.

Wei wrote the above comments in the China Securities Journal today, according to a Bloomberg report.

The Chinese official also stated that “While gold prices are currently near record highs, China can build its reserves by buying low and selling high amid the short-term volatility,” the report noted, because the nation’s current level of gold reserves is “too small.”

China has not updated its gold holdings since 2008, when it disclosed that its reserves had increased from near 500 tonnes to more than 1,054.1 tonnes.

In 2009, a State Council advisor in China stated that a group of officials and economists from Beijing and Shanghai established a “task force” to discuss measures to add to the nation’s gold holdings.  “We suggested that China’s gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years,” the advisor noted.

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If the Chinese took the advice of the task force, it is possible that the country may have already or could soon overtake Germany as the second-largest owner of the yellow metal.  Germany currently holds 3,395.5 tonnes, while the United States is first with 8,133.5 tonnes, according to the World Gold Council.

As GoldAlert has discussed on many occasions, one of the driving forces behind the gold bull market in recent years has been the fact that central banks as a whole have turned from net sellers to net buyers of the metal.  This development has been particularly noteworthy in many emerging market countries, which have purchased more gold in part to hedge against the inflationary policies of central banks in the U.S., Europe, England, and Japan.