China Downplays Role of Gold in its Forex Holdings

This past week China’s State Administration of Foreign Exchange, or SAFE, indicated that it will “improve its diversification strategy on investing its foreign-exchange reserves–which at nearly $2.5 trillion is the world’s largest–but gave no details,” according to The Wall Street Journal.

The regulator had earlier indicated that the euro will stay an important part of its mix, despite the region’s debt crisis. More recently, though, it has also downplayed the usefulness of gold in particular as an asset class.

This from MarketWatch:

“China’s State Administration of Foreign Exchange, the regulator which oversees the nation’s nearly $2.5 trillion foreign exchange stockpile, said Thursday that the gold market is too small, illiquid and volatile to be considered suitable for asset allocation, according to a Reuters report…

“Safe did not give an update on its gold holdings, which rose to 1,054 tons last year from 600 tons in 2003, as a result of purchases of local production. Safe also said in the annual report that it plans to improve the diversification strategy for the management of China’s reserves, including the range of asset classes it believes are suitable. It did not provide details.”

On the one hand, China is seeking to improve the way it manages its foreign exchange reserves. On the other hand, it’s denying any speculation of big changes in dollar- or euro-denominated assets. China’s also highlighting its disinterest in gold, despite nearly doubling its gold holdings over the past seven years. It all seems a little contradictory… and the statement doesn’t really leave much room for new alternatives. It’ll be interesting to see how China ends up stashing its huge nest egg.

You can read more details in coverage at The Wall Street Journal and at MarketWatch.


Rocky Vega,
The Daily Reckoning