The statement of China's State Administration of Foreign Exchange (SAFE) is unlikely to impact the bullion market.

The SAFE described Beijing as a responsible long-term investor and doesn't seek the power to control recipients of its investment.

It said gold is a store of value and can be used for urgent payment. However, there are some limits to investing in gold and it cannot become a main channel for investing our foreign exchange reserves. First, the size of the gold market is limited. Annual global gold output is about 2,400 tonnes and there is a basic balance between its supply and demand now.

If China buys a large amount of gold, it will surely push up the global gold price. China's gold price basically matches the global level, so when Chinese people go to buy gold jewellery in shopping centres, they face surging prices. That will eventually hurt the interest of Chinese consumers.

The announcement caused a minor stir in gold prices, sending bullion down around $6 or 0.8%, to $1,188.75 in the first 30 minutes after the news broke.

Analysts said this won't have a big impact. The market is under pressure for other reasons, there is a worry of a bigger pullback and there is a flight to cash.

China has increased its gold holdings by more than 400 tonnes in the past few years to 1,054 tonnes. Even if it doubled that amount, gold's share of SAFE's portfolio would increase by only one or two percentage points.

With China the leading global gold producer for the last three years, there is no point for them to buy from outside and disturb the market.

Though they are increasing their gold reserves in a slow and steady manner, those purchases have been largely internal. This news is unlikely to have any major impact on gold as China wasn't behind the gold bull run.

Analysts said Beijing's comments, which echo those made in March and June, may be a bid to keep domestic prices in check as it builds its golden hoard from domestic supplies.

China Gold