LAWRIE WILLIAMS: China reports zero change to gold reserves again as forex holdings fall
Perhaps the U.S. ‘trade war’ with China is beginning to have an effect, but after nearly a year of growth China’s forex reserves fell by around US$9 billion in November, but still remain comfortably the world’s largest at $3.096 trillion. With China’s reported Q3 growth falling to 6% - still a reported growth rate which is the envy of most of the developed world – observers had been expecting a fall. However analysts had been expecting a smaller fall according to a Reuters poll which had suggested a $4 billion fall only. Even so, China’s forex reserves remain higher than they were a year earlier.
While the country’s reported gold reserves at end-November fell in value to $91.47 billion from $94.65 billion at end-October, thus accounting for about one-third of the overall forex reserve downturn, this was entirely due to the fall in the gold price over the month. The reported gold reserve volume remained unchanged at around 62.64 million troy ounces (around 1,948 tonnes) – now the second month in a row that China has reported a zero increase in its gold reserve total.
China had been reporting monthly gold volume increase levels since last December after around two years of reporting zero increases. It may be remembered that in the past China often went for several years claiming it wasn’t raising its gold reserves – and the announcing a massive increase which it had, apparently, been holding in other account(s) which it said it didn’t need to report! What we don’t know if the recent supposed hiatus in gold reserve increases represents a return to this prior policy, or if it is a genuine case of not adding to its gold.
Many followers of Chinese machinations in the gold market suggest that the nation’s true reserve figure is substantially higher than the 1,948 tonnes it currently reports to the IMF. Depending on the analyst concerned this figure ranges from the current level up to perhaps 20,000 tonnes. Indeed this latter figure has been bandied around as sufficient to support a supposed dollar-killing gold-backed cryptocurrency. We have not taken this view but do believe the actual figure is likely to be comfortably in excess of the reported figure- perhaps as much as 5,000 tonnes which would put it in second place in terms of global reserves.
Do we have grounds for coming up with this kind of figure? China has been the world’s top gold producer for a number of years now, and analysts’ calculations of the nation’s gold demand have been consistently far lower than that calculated by adding known gold imports to China’s own announced production plus an allowance for scrap conversion. There are also undoubtedly unknown imports from countries which don’t break down their gold exports by country, and possibly unreported imports from Chinese-owned gold miners located elsewhere in the world. We thus have taken gold withdrawal figures from the Shanghai Gold Exchange (SGE) as a proxy for China’s total gold demand and this has totalled over 2,000 tonnes a year for the past several years – although looks like being below this figure in the current year. This compares with some analysts’ estimates in the past which have suggested Chinese demand as totalling only around 1,000 tonnes annually! This suggests a big discrepancy between the nation’s actual gold consumption and the calculated total supply.