LAWRIE WILLIAMS: China says it only adds 5.9 tonnes of gold to reserves in August
The Peoples Bank of China (PBoC), the nation’s central bank, has reported a 5.91 tonne (190,000 troy ounce) increase to its official reserve level in August. There had been speculation that the clampdown on commercial gold imports from around April to July this year would divert previous gold imports into official reserves, but this doesn’t seem to have been the case, at least as far as the amounts China actually reports are concerned!
The latest increase in gold reserves will bring the volume of gold reserves as reported to the International Monetary Fund (IMF) to a little over 1,942 tonnes – keeping the nation in sixth place among reported national reserve holders.
We have always considered the reported Chinese figure as dubious though as, in the past, it has often gone for multi-year periods of reporting zero increases in its gold reserves – and then substantially upping them by amounts it must have been accumulating over the non-reporting months and years. It justifies this by saying this gold had been held in accounts which were non-reportable and only released details of the increases when the gold was actually moved into its forex holdings total.
How much more gold it may be holding in such ‘non-reportable’ accounts remains a state secret. It could be zero, or it could also be several thousand tonnes. As the world’s No.1 gold producer for around 12 years now with gold output for the past few years at over 400 tonnes a year, and as a country which does not export any significant amounts of gold, it has had the capability of increasing its gold reserve holdings surreptitiously without any overt impact on global markets.
However, China has deviated from its previous multi-year non reporting policy from December last year, after the latest period of around 2 years of officially reporting zero monthly increases. Since that month it has been announcing month-by-month gold reserve increases in the interests of ‘transparency’, but given the prior reporting anomalies it remains uncertain whether such monthly amounts are any more accurate than the previously reported zero increases. According to a Bloomberg report, since it restarted reporting monthly gold accumulations into its reserves it has claimed to have added nearly 100 tonnes over the eight reporting months, but the latest month’s figure is the lowest yet recorded over this period.
It is widely believed that China has the policy of building its gold reserves to a substantial level – perhaps with the target of equalling, or exceeding, the USA’s reported 8,133.5 tonnes. At a 6 tonne a month accumulation this would take many years (around 86!). However many reckon that the true size of China’s gold reserves is already very substantially higher than the figure it reports to the IMF. The theory is that gold may play an increasingly important role in any future financial reset, particularly given the huge debt positions incurred by most of the world’s leading economies, and that the recent rise in Central Bank gold purchases over the past 2-3 years represents a global move to diversify these reserves away from their previous heavy reliance on the U.S. dollar and dollar-related securities. Russia for example has been particularly successful in reducing its dollar exposure to the absolute minimum as it fears that the U.S. could freeze its dollar holdings as part of an ongoing sanctions programme. China is still mired in a trade war with the U.S. and may be anxious not to rock the boat for the moment by keeping quiet about the true size of its gold holdings. It could use liquidating a major proportion of its holdings of U.S. Treasuries as a bargaining chip!
09 Sep 2019