China may be regretting modest forex gold buys

China shocked the gold market in July last year by revealing its official reserves for the first time since 2009. It put to an end to years of speculation and rumours of Beijing quietly buying massive amounts of bullion.

The People's Bank of China had been buying gold to the tune of 100 tonnes a year since 2009 (way below some estimates/hopes) and it appears the central bank's plan is to add to its reserves at roughly the same clip in future.

On Thursday PBOC – which is battling credibility issues concerning what some are calling a stealth devaluation of the renminbi – updated the figures again saying reserves of the metal grew by 19 tonnes during the month of December for a total of 1,767 tonnes or 56.7 million troy ounces. During the second half of 2015 the bank added more than 100 tonnes.

China sits above Russia – another active buyer of gold – in the list of countries with the largest stash of the yellow metal, placing it in the fifth position, after the US, Germany, the International Monetary Fund, Italy and France, according to the World Gold Council.

In terms of gold as a percentage of total forex reserves, gold constitutes only 1.8% of China $3.3 trillion reserves. That compares to 70% in the US and Germany.

It was revealed on Thursday that in December China's reserves dropped by nearly $108 billion, the biggest decline on record bringing total holdings to the lowest in three years.

Gold has benefitted from safe haven buying and turmoil on global equity and currency markets sparked by fears about the economic outlook for China. Gold was last trading at $1,108.90 an ounce in New York, up 1.6% on the day.

Priced in renminbi, the price of gold is up 6% so far in 2016, while the Shanghai Composite Index of stocks is down 12% since the start of the year although losses would've been much greater if not for intervention by authorities.