"The Chinese government continues to diversify its massive $US3 trillion in foreign exchange reserves away from US-denominated assets and into hard commodities, particularly gold," Bell Potter Wholesale managing director Charlie Aitken said in a recent report.
"Clearly, the intention is to eventually float the Yuan, which by definition means the
Chinese currency will require higher gold-backed reserves.
"The sharp rise in global investment demand from retail investors through exchange traded funds and gold funds is being exacerbated by static global mine production from the major gold producers, and net physical buying from central banks.
Aitken said there was no doubt the macro climate remained supportive for gold.
Patersons Securities maintained its "five year old call to stay long physical gold", but also discussed debt-related concerns over China.
"Interbank liquidity, very tight in China over the last three weeks, appears to be improving, and delivered iron ore prices are holding up as the market appears more reassured the country can deal with its off-balance sheet bad debt problems," the stockbroker said in its recent weekly market wrap."
However, Patersons said some government bond issues had again failed to get away in China.
"While Chinese inflation has moved higher, there is a feeling in the market that inflation pressures are reducing as global growth abates. US second quarter earnings are helping the market as it grapples with US debt extension negotiations, and the EU debt situation.
"Many traders are standing aside and waiting, realising the current influence of political decision making on global markets over the next two weeks."
Patersons further observed that gold prices had been supported by production pressures in large producing nations such as South Africa, but central bank selling of gold had also "overhung the market".