LAWRIE WILLIAMS: China official gold reserves unchanged again as forex holdings dip
The Chinese central bank yet again reported a zero increase in the nation’s gold reserves in May – for the nineteenth successive month - as its total forex holdings slipped by a little over $14 billion to the lowest level since October. According to China’s Xinhua news agency the total, still an enormous US$3.11 trillion, came out slightly higher than the market forecasts of around $3.10 trillion and marks the second straight month of decline.
Xinhua went on to note that the State Administration of Foreign Exchange (SAFE) attributed the decrease to weaker non-dollar currencies and rising global asset prices. In May, the U.S. dollar index in the global financial market went up 2.3 percent. However, cross-border capital flows and transactions remained generally stable, with balanced supply and demand in the forex market. SAFE went on to say that the Chinese economy has maintained an improving trend, with economic structure continuing to optimise amid better growth quality and efficiency.
Although the size of the nation’s gold reserves, as reported to the IMF remained unchanged at 59.24 million ounces (which as we have stated before we don’t really believe) their value dropped by a little over $4 billion due to the lower gold prices which prevailed during the month. The fall in the value of the Chinese gold as reported accounted for around 28% of the $14.23 billion drop in its officially reported forex reserve total.
I will apologise to regular readers of this column for re-iterating that we feel the Chinese reporting of the size of its official gold reserves to the IMF is, at best, economical with the truth! The country has a strong track record of only announcing its gold reserve increases at multi-year intervals when it moves gold from non-reported accounts into those that it announces to the IMF. We have speculated that this gold may well be being held temporarily in the accounts of state-owned commercial banks which could account, at least in part, for the big discrepancies in calculated Chinese demand by the major Western consultancies, and what appear to be the considerably higher gold accumulations by the nation. This accumulation figure arises from known gold imports, plus China’s own domestic gold production plus scrap supply – let alone unreported gold flows into the mainland from sources which do not break these figures down. The consultancies’ demand figures do not include gold used in financial transactions – hence our suggestion that it may be being held by the commercial banks on behalf of the People’s Bank of China (PBOC) – the country’s central bank. This total gold accumulation may well be as much as double the consultancies’ estimates of Chinese demand.