China mulls opening door on gold market (2)

As China's gold output and consumption increase, and its gold reserves continue to expand, local authorities need to adopt policies which will give China more control over the commodity's price, according to Li Qi, a gold analyst from Shanghai Cifco Futures.

China is expected to consume 850 tons of gold this year, placing the country in line to become the world's largest gold consumer by 2013, according to statements made by the World Gold Council (WGC) on August 16.

Meanwhile, China's gold output rose 5.89 percent year-on-year to 360.96 tons in 2011, making the country the world's largest gold producer for the fifth consecutive year, according to figures from the China Gold Association.

The US Federal Reserve's third round of quantitative easing dampened the value of the US dollar and cut into the worth of China's dollar-denominated bonds and institutional debt, Li said.

"Under these circumstances, the government is expected to increase its holdings of the safe-haven asset in order to minimize exposure to the depreciating US dollar, so it would be in the country's best interest to have more sway over how much it pays for gold," Li explained.

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