China's Gold Reserves: Watch What They Do, Not What They Say.

Yi Gang, Vice Governor of the People's Bank of China (PBOC), recently made the headlines with his comments on Chinese gold reserves. On Wednesday, Mr. Yi stated that China's gold reserves remain static at 1,054 tonnes, and suggested that a sizeable increase in those reserves would be unlikely in the future. "We need to take into account both the stability of the market and gold prices," Mr. Yi stated, adding that as the world's largest gold producer and importer, China produces about 400 tonnes of gold annually, and imports an additional 500 to 600 tonnes of gold every year. "Compared with China's 3.3-trillion-U.S.-dollar foreign exchange reserves, the size of the gold market is too small," Yi said, rejecting speculation that China would further diversify its foreign reserve investments into the precious metal. "If the Chinese government were to buy too much gold, gold prices would surge, a scenario that will hurt Chinese consumers ... We can only invest about 1-2 percent of the foreign exchange reserves into gold because the market is too small," Yi stated.