Despite rampant speculation that China might buy 191.3 tons of gold being offered by the International Monetary Fund (IMF), it turns out that China turned down the opportunity.
There A) are far better ways the country can deploy its massive reserves and B) China would rather just produce its own gold and store it rather than risk disturbing the dollar market:
“It is not feasible for China to buy the IMF bullion, as any purchase or even intent to do so would trigger market speculation and volatility,” said the official from the China Gold Association, on condition of anonymity. He said China would continue to shore up its gold reserves by acquiring gold mines abroad rather than purchases on the international market.
Zhu Baoliang, a researcher at the State Information centre, said China would not hike its gold reserves given the limited quantity available on the market. “Gold is only a small portion of the nation’s reserves,” he said.
China would far rather avoid using dollars to add to its reserves. Which means it will simply increase production of gold at home, and store that.
Business Week: “We’re not surprised to see that China has not” purchased IMF gold, said George Milling-Stanley, the London-based council’s managing director for government affairs, said in a telephone interview from New York. The country is more likely to “buy local gold production” to add to its reserves.
“There has been some ill-informed comment that this move tarnished the notion that governments are adding to reserves,” Milling-Stanley said. “There are a lot of central banks out there that are buying local production in local currency. The IMF would have no interest in that local currency. The IMF is looking for dollars.”
“China was always buying its own domestic production and it will likely to continue to do so,” Milling-Stanley said.
So China can load up on gold without touching the world market.