China May Increase Gold Reserves Beyond Fort Knox Level

China's central bank is being advised to increase its gold holdings nearly tenfold to a level greater than the world's biggest bullion depository, the U.S.'s Fort Knox.

Global economist David Hale, who addressed the packed Mining Indaba in Cape Town attended by a record 5,700 people, says that China's gold reserves are currently at 1,050 tons—only $30B to $40B compared with the country's total assets of $2.8 trillion.

Various officials in China have proposed the central bank should increase its gold reserves to 10,000 tons, which would give China larger gold reserves than Fort Knox.

"This would be a huge development for the gold market," he says, with global mining output of gold only at 2,500 tons a year.

"China will probably start to buy gold in the near future, but they won't report it for two or three years," Hale says.

When China increased its gold reserves from 600 tons to 1,050 tons in April 2009, the country only acknowledged doing so much later.

"The odds very much favor China making, over five years, very large gold purchases, and this in turn makes me bullish on the gold price," he adds.

In addition to the central bank purchases of gold, preliminary data suggests that the Chinese private sector has bought 300 t of gold in the last year, compared with zero three to four years ago.

Given the rising Chinese incomes and inflation, Chinese private demand for gold could increase in the next few years to the historical levels of India, which for many years has been the world's largest private buyer of gold.

"China offers the prospect of very healthy demand for gold and this could over the next couple of years set the stage for further major gains in the price of gold."