China has been at the centre of plenty of speculation over recent months, not least because the country has tripled its bullion holdings since April 2009. Analysis from Bloomberg Intelligence suggests that the nation could have as many as 3,510 metric tonnes of gold, putting China only second to the US in terms of the size of its stockpile.
However, it is expected that speculation will soon come to an end, as Chinese authorities are under increasing pressure to declare the state of their assets. Policymakers believe the Chinese yuan should be added to the International Monetary Fund's (IMF) currency basket, which currently contains four key international currencies – the US dollar, euro, yen and British sterling.
These special drawing rights – or SDRs as they are often known – were introduced by the IMF back in 1969 to supplement the official reserves of its member countries. Any nation participating in the SDR needed official reserves, which could include gold and any widely accepted foreign currencies.
Bloomberg Business explains that despite being the world's largest gold producer, China's holding in the precious metal back in 2009 accounted for just 1 per cent of its foreign exchange reserves. Most of these reserves are held in dollars, and since the dollar comprises around 63 per cent of world central bank holdings, it is in the IMF's best interests to gain greater insight into what is happening in terms of China's gold reserves.
China recently unveiled aggressive monetary easing strategies, which largely left gold prices unaffected. The bullion market suffered a 1 per cent cut to its reserve requirement ratio from the People's Bank of China, making it the second time such a situation has arisen this year. Some experts believe this points to evidence of growing concerns over the state of the Chinese economy.
FastMarkets analyst William Adams commented: "The weaker dollar has provided some lift but, as in the base metals, the higher prices seem to be attracting some selling; weaker equity markets on Friday also led to some risk reduction too.
"Broad-based risk reduction could initially weigh on precious metals, but a secondary reaction could be bullish for the gold price if safe-haven buying picks up."
Gold is fast becoming a tool for gaining global power, but with China's exact reserves still largely in the dark, it is difficult to know exactly where the big players stand. A report from Nomura Holdings indicates that China could release this information ahead of the IMF's forthcoming meetings on the SDR, which are due to be held in May and October.
Analysts are still waiting for China to release details of the size of its gold reserves – an announcement that many people had anticipated would happen this month. The last report was issued in April 2009, but as market experts point out, China does not tend to work to a strict schedule of providing information.
"They'll report whenever they want, and - this is the crucial point - probably not until it is politically expedient to do so," indicated Jeff Clark, senior precious metals analyst at Casey Research.
Many traders are waiting with great interest to find out where China's assets lie and with growing pressure from the IMF, it might not be long until this all-important insight is revealed. No matter what results are released, the consensus is that China's gold reserves will still be relatively low. Officially, the nation has just 1.3 per cent of its reserves in gold and this figure is not likely to increase considerably when the next announcement is made.
