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I read The People's central Bank of China (i think called PBOC) should have bought 50 to 70 tons of gold in 2011 (Marcus Grubb, managing director World Gold Council). On the same article it states Central Banks (along with Russia, Mexico, South Korea) bought 440 tons of gold in 2011.

On this Italian economic newspaper (similar to FT) they also say China is not usual to communicate when it buys gold, and in 2009 PBOC surprisengly said they bought 454 tons of gold in six years.

Since dollar, euro and I think also yuan are FIAT currency (not connected to gold), why are they all buying gold to fulfill their gold reserves?

I'm not only asking why they are buying it now, but why do they buy gold in general. What do they need it for?

BTW: I read also this but I was unable to understand what they are talking about.

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It more on economics but as the economics.se is closed let me try and keep it simple here;
All currencies in the world today are FIAT currencies. There could be few exceptions in Small Island a country that I am not aware of and world doesn’t care.

As to why quite a few nations especially Developing countries are buying GOLD is to ensure that they have enough reserve available incase there is a balance of payment crisis. China has a huge surplus trade with US and Europe. This means it is holding lots of USD and Euro Bonds. If incase there is a crisis and these Bonds weaken, China will be left with paper that cannot buy it anything. Gold on other hand may not loose value, but does pose storage and transportation cost. Hence most of the developing countries are keep some portion of their reserves [ie USD or EUR earnings] into Gold. Essentially hedging against these currencies.

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  • Hmmmm, thus China is not trusting US treasury anymore. It doesn't sound good to me. – Marco Demaio May 14 '12 at 14:07
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    @MarcoDemaio your conclusion is a bit far-fetched... If you diverse your investments, does it mean you're not trusting one of them? No, you wouldn't invest had you not. – littleadv May 14 '12 at 16:12
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    @MarcoDemaio it's seven years later and the US hasn't defaulted on it's obligations... – RonJohn Mar 13 '19 at 13:54
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    @MarcoDemaio there are too many who thought the US actually would. – RonJohn Mar 29 '19 at 0:08
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    Why the love of capitalizing "fiat", when FIAT is the Italian car company? – RonJohn Nov 8 '19 at 14:06

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