LAWRIE WILLIAMS: China’s gold reserves – fact or fiction?
One of the biggest unanswered questions facing the gold analyst and investor is ‘are China’s officially reported gold reserves to the IMF fact or fiction? According to the country’s central bank, which reports these figures to the IMF, which does not check any of the nationally reported gold reserve figures, these have remained static at 59.24 million troy ounces (1,842.6 tonnes) for the past 20 months keeping the country in sixth place in terms of national gold holdings.
Well the answer to the question, in our opinion (pure speculation), is yes they are fact and fiction at the same time and one has to understand Chinese bureaucratic logic to make sense of this. In terms of the bullion accounts China feels the need to report to the IMF the figure is probably correct, but that doesn’t mean the country is not holding physical gold in other accounts under state control and only reports this when it moves the gold into its official forex holdings account which can be at multi-year intervals.
China did report monthly increases in its gold reserves in the 15 month run up to the yuan being accepted as a constituent of the IMF’s Special Drawing Right, but since then nothing, which looks like the nation is reverting to the pattern of only reporting big reserve increases after five or six years of reporting a static reserve. The last such big increase was in mid 2015 when 604 tonnes of gold suddenly appeared in the Chinese reserve figure. The previous reported reserve increase was in April 2009 of around 450 tonnes after reporting zero increases for the previous seven and a half years.
At the time of the 2015 increase, the Chinese central bank said it had been purchasing this gold via assorted domestic refineries, production stockpiles and through trading on domestic and international exchanges. It had been holding this gold in accounts separate from its forex holdings and had not felt the need to report this to the IMF until it moved the gold into its official forex accounts.
The suspicion is that China has reverted to a similar policy as in the past picking up gold bullion from domestic and international sources – but who knows exactly how much gold is being held in similar accounts. China considers its gold holdings a state secret and only releases information on these holdings when it feels the time is ripe – and even then is it letting the outside world know exactly how much gold it is holding surreptitiously? As the world’s largest gold producer, and given it exports no gold, it could easily have been accumulating over 400 tonnes of gold a year from domestic sources alone for the past several years and its government-controlled gold holdings could well be far higher than its officially released figures. Some feel the true figure is several times higher than that reported to the IMF. In the minds of the Chinese leadership gold still has a hugely important place in any future financial reset.
15 Jul 2018
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