By MarketWatch
HONG KONG (MarketWatch) -- China's appetite for gold as a way to diversify its foreign-exchange reserves is limited because of the metal's poor returns over the past 30 years, the nation's foreign-exchange regulator was cited as saying in a report Tuesday.
Yi Gang, director of China's State Administration of Foreign Exchange, said China's gold reserves, at 1,054 metric tons, were the fifth-largest in the world, Dow Jones Newswires reported, citing comments by Yi at a press conference at the National People's Congress.
But Yi downplayed any desire to add the holdings as a strategy to diversity the nation's $2.4 trillion foreign exchange stockpile.
"Gold is not a bad asset, but currently a few factors limit our ability to increase foreign-exchange investment in gold," Yi was quoted as saying.
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Calculations by the Dow Jones showed China's gold holdings amounted to 1.6% of its total forex reserves, based on reported bullion holdings at the end of last year.
Yi acknowledged that China's arrival as a gold buyer has had an impact on world markets for the precious metal, adding that moves by Beijing to purchase gold would "certainly" increase prices, according to the report.
China surprised the market in April last year by declaring gold holdings of 1,054 metric tons, 76% higher than its previous declaration, placing it ahead of Switzerland in terms of the size of its bullion stockpile. It also catapulted China into an elite club of six nations, plus the International Monetary Fund, that hold more than 1,000 tons. See related story on increase in China's gold reserves
At the time, Chinese officials did not elaborate on where they had sourced the bullion, but comments have since been interpreted as suggesting the gold came from domestically mined production and the refining of scrap gold.
China is ranked by the World Gold Council as the largest global producer of the metal and the second largest consumer behind India.
Treasury buys not political
Yi also discussed China's purchase of U.S. sovereign debt, saying such holdings can be mutually beneficial for both countries.
He said that China doesn't want to politicize its trading in U.S. Treasurys, reiterating that Beijing wants to be a "responsible investor" in the debt, according to the report.
While recent U.S. data showed Japan had overtaken China as the largest foreign holder of Treasurys, some analysts believe the data understate Chinese holdings and that the statistics are not a sign of any dampening in Beijing's investment appetite for the securities. See Caixin Online story on Chinese purchases of U.S. Treasurys.
