LAWRIE WILLIAMS: China continues to add to its gold reserves – but at lower rate m/m

The Chinese Central Bank has announced another addition to its gold reserves – for the seventh month in a row now – and this time of 10.26 tonnes.  Thus so far this year the Chinese Central Bank has officially added some 74 tonnes of gold to its reserves, although like all Chinese data one wonders at the veracity of these figures.  China has in the past gone for long periods claiming not to have added at all to its gold reserves, but then comes up with very substantial increases which, in reality, it must have been accumulating over a number of months, if indeed it didn’t have it already.  There are also strong suspicions that the overall total holding the country reports to the IMF substantially understates its true total holdings which some observers feel could be at least three to four times the official level of a little under 2,000 tonnes.

Germany’s Commerzbank speculates that the latest announced gold reserve increases are because of the trade dispute with the U.S. which may have prompted the nation to take in gold while reducing its U.S. dollar related holdings.

The Chinese 10.26 tonne addition to reserves in June, though, was well below its announced reserve increases in May (15.86 tonnes) and April (14.93 tonnes) which may, or may not, be significant.  The trade talks with the U.S. had broken down at the time and one wonders that if, as now they are resuming, Chinese gold purchases will pick up again this month if the Commerzbank reasoning is correct.

All in all Central Bank gold buying seems to be holding up well this year, with Poland last week making the surprise announcement that it had added 100 tonnes of gold to its reserves in the first half of 2019, almost doubling them to 228.6 tonnes.  This follows on from purchases of around 25.7 tonnes in the second half of 2018.  According to the World Gold Council, central bank gold demand is up 73% year on year for the first five months of the current year, which bodes well for the maintenance of the high central bank gold purchase levels we saw last year.

Poland is something of a maverick among the EU member states having retained the zloty as its currency, and rejected the euro and seems to be politically at odds with the Eurozone hierarchy.  In this it parallels Hungary which has also retained its own currency and also announced a big surprise increase in its gold reserves last year.  With Russia, Kazakhstan and India all buying fairly consistently there has to be a decent chance that last year’s central bank buying, which totalled some 651.5 tonnes according to data released by the World Gold Council again – the highest level since President Nixon closed the gold window in 1971 – could be matched, or even exceeded, again this year.  However Russian purchases have diminished over the past couple of months leading to speculation that it may be winding down its high level of gold accumulations.

Simultaneously with the announcement of its big gold purchasing half year, Poland also announced it would be repatriating the 100 tonnes, held at the Bank of England in London, to its own vaults in Warsaw.  This is also following a trend whereby gold holders are repatriating their gold from the traditional centres of New York, London and Paris to take possession of their own gold in their own domestic vaults.  Such moves may well be exacerbated by the Bank of England’s refusal to release Venezuela’s gold reserves it holds on behalf of the country with its disputed Maduro government.

09 Jul 2019

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com