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LAWRIE WILLIAMS: China forex reserves rise in July despite gold price fall

The latest data from the People’s Bank of China (the nation’s central bank) show that the country’s foreign exchange (forex) reserves rose in July by US$5.8 billion or 0.19 percent, from a month earlier to US$3.1179 trillion, despite the gold price fall. The value of the country’s gold reserves, whose size reportedly remained unchanged at 59.24 million ounces, fell by $1.75 billion over the month to $72.32 billion. At an unchanged gold price the nation’s forex reserves would thus have risen by $7.55 billion.

Looking at the forex reserve figures some of the increase will have been a revaluation of the country’s holdings given the decline in the parity of the yuan against the dollar in a reaction to the Trump Administrations’s tariff impositions on Chinese imported goods. Whether this was due to normal forex market activity, or a Chinese move to gradually devalue the yuan in the new trading situation, is open to speculation!

As to the country’s gold reserves which have now remained unchanged, as officially reported, for 21 months in a row, as we have often stated beforehand we reckon that China is actually accumulating gold in non-reported accounts. (See: China’s gold reserves – fact or fiction?)

These could be in other directly controlled holdings or in accounts held by government controlled third parties, like the state-owned commercial banks and could be seamlessly moved into the nation’s officially reported reserves when the time is considered opportune to do so. China does have a track record of doing this and only reporting reserve increases at multi-year intervals – apart from during a 15 month period ahead of the yuan being accepted as an integral part of the IMF’s Special Drawing Rights (SDR) when China reported monthly gold reserve increases. As soon as the yuan became a part of the SDR basket it ceased to report any gold reserve increases. We do not think this timing was accidental!

According to the figures reported to the IMF, China is in sixth place among major national gold holders with the aforesaid 59.24 million ounce (1,842.6 tonnes) but this only accounts for a paltry 2.3% of its forex reserves. There is much speculation that the nation’s true gold holdings are far higher – perhaps three or four times this amount.

07 Aug 2018 | Categories: Gold, China

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