January 7, 2016 / 10:47 AM / 4 years ago

China adds to gold reserves in December, buying streak to continue

SINGAPORE (Reuters) - China added more gold to its reserves in December, bringing its total purchases in the second half of 2015 to more than 100 tonnes, with analysts predicting the country will continue purchasing at a similar pace this year.

An employee arranges gold jewellery in the counter as her arm is reflected in the mirror at a gold shop in Wuhan, Hubei province, in August 25, 2011 file photo. REUTERS/Stringer/Files

More purchases by the world’s sixth largest official sector gold holder could lend support to international prices of the precious metal, which are currently near nine-week highs amid a global stock market rout, worries over the Chinese economy and heightened geopolitical tensions.

China’s gold reserves stood at 56.66 million troy ounces at the end of December, versus 56.05 million ounces in November, the People’s Bank of China (PBOC) said on Thursday.

In tonnage terms, China’s reserves increased by 19 tonnes in December to 1,762.323 tonnes. PBOC’s purchases in the second half of the year totaled about 104 tonnes.

“The PBOC is adding to its gold stock at a steady pace,” said Shandong Gold Group chief analyst Shu Jiang, adding that the central bank’s purchases will be driven by the need to diversify its foreign exchange reserves.

“PBOC knows there is great attention paid to its purchases. They would purchase gold steadily to minimize the impact on the gold market,” he said.

Higher gold prices will not necessarily curb PBOC’s buying, but a sharp drop could prompt it to purchase more, Shu said.

Gold prices tumbled 10 percent last year, a third straight annual loss, on fears that higher U.S. rates would dent demand for the non-interest-paying metal. Several analysts have predicted further price declines.

Market participants believe the PBOC will continue buying the metal in a bid to diversify its currency risks, as gold reserves, according to Reuters calculations, currently make up only 1.8 percent of the country’s total foreign reserves.

The country’s total foreign exchange reserves, the world’s largest, fell $107.9 billion in December to $3.33 trillion, the biggest monthly drop on record.

China should increase its gold holdings to around 5 percent of its total reserves to help diversify currency risks, a World Gold Council official said last year.

The United States, the top holder of gold with over 8,000 tonnes, has 73 percent of its total foreign reserves in gold.

In June, China provided details on its gold holdings for the first time since April 2009 and has been giving monthly updates since then. It previously considered its gold holdings a state secret and did not report its holdings on a monthly basis to the IMF like most other countries.

Reporting by A. Ananthalakshmi; Editing by Himani Sarkar

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