LAWRIE WILLIAMS: China preserves gold reserve fiction yet again.
Despite a decline in the value of its overall forex reserves in October, the Chinese central bank is still reporting unchanged gold tonnage in its reserve figures. Bloomberg reports that the country’s total forex reserves fell by US$33.9 billion to $3.053 trillion last month, which was lower than the median estimate of $3.059 trillion in Bloomberg’s survey of economists.
The ‘official’ Chinese gold reserve figure of 1,842.6 tonnes as reported to the IMF remains unchanged, as it has for the past two years. We have claimed before that the Chinese Government and central bank have control over what is probably a far larger gold reserve, much of which is held in accounts the Chinese feel they have no need to report to the IMF as it is held outside its official forex system. The nation has a track record of moving large amounts of gold into its official reportable reserve holdings as and when it feels it opportune to do so – the last time being an increase of around 600 tonnes in July 2015.
As we have noted in these columns before, China reported zero increases in its gold reserve from late 2002 to April 2009 and then again from April 2009 until the July 2015 increase and on each occasion then reported massive increases, presumably built up over the previous 6 years, but held in some unspecified accounts which the Chinese government felt no need to report – at least that’s what they said at the time. (From July 2015, somewhat cynically, the country did report monthly gold reserve increase for the 15 months prior to the yuan’s final acceptance into the IMF’s special drawing right (SDR) basket of currencies but once this acceptance was confirmed, China abruptly ceased to report any monthly increases in its gold reserve. Draw your own conclusions!).
What is unknown, however, assuming we are correct in our supposition, is the size and location(s) of these additional government-controlled gold holdings. They could be in surreptitious government or central bank accounts, or as we have speculated before being held in the vaults of the state-owned commercial banks. If so this would go a long way to accounting for what appears to be the big annual difference between Chinese consumption, as assessed by the major Western precious metals consultancies and known gold flows into mainland China (including the nation’s own gold production).
It is widely assumed that China has the aim of building a gold reserve at least equal to that of the USA’s 8,133.5 tonnes and at its current reported level is still well short of this. One reason it may not be reporting its full gold holding is that were it to do so, and the actual holding is very substantially in excess of that it has been reporting, then this would give a massive stimulus to the gold price. This would make it much more expensive for China to continue building its gold reserves, and might also give an unwanted boost to the nation’s currency parity against that of other nations – notably the U.S. Thus the fact that China does not appear to be reporting its true gold holdings suggest it hasn’t achieved its final aim yet of surpassing the U.S. level – but it could be getting close!