LAWRIE WILLIAMS: China's gold reserves fall in value as overall forex holdings fall too.

The value of China’s gold holdings at the end of September fell to US$70.327 billion, from $71.228 billion at the end of August as the country’s overall forex reserves came in at $3.087 trillion, the lowest level for 14 months. But the fall in the reported value of Chinese gold does not represent sales out of the country’s reserves, but a reduction in the U.S. dollar gold price over the month, thus reducing their apparent value. The overall gold reserve reported total remains unchanged at 59.24 million ounces – now the 23rd month in a row that China has reported a zero monthly gold reserve increase.  Once again we doubt whether this represents the true state of China’s total government controlled gold holdings.

The overall forex holding figures were below most estimates, but might be considered slightly surprising given Chinese goods exports in dollar terms rose 14.5% in September generating a trade surplus of US$32 billion.Exports to the U.S. were particularly strong despite, or perhaps because of, U.S. tariffs, with U.S. importers building inventory ahead of the tariffs coming into effect. However most of the overall reserve fall has probably been due to the depreciation in the Chinese currency against the dollar.

As we have reported before, China has a track record of non-reporting of its monthly gold reserve increases to the IMF which is probably now why it languishes in only sixth place among national holders of gold, behind Russia which appears to have overtaken it last year.

 World’s Top 10 National Holders of Gold (as reported to the IMF)

 Rank     Nation          Tonnes reported

1.           USA                  8,133.5

2.           Germany            3,369.9

3.           Italy                  2,451.8

4.           France              2,436.0

5.           Russia              2,001.1

6.           Mainland China  1,842.6*

7.           Switzerland        1,040.0

8.           Japan                  765.2

9.           Netherlands          612.5

10.         India                    573.1

However, in the relatively recent past, apart from a 15-month period immediately leading up to the yuan’s acceptance as a significant part of the IMF’s Special Drawing Right (SDR) in October 2016, China has only reported it gold reserve increases at multi-year intervals, claiming the difference had been held in the interim in accounts which did not require reporting!

There is a generally held opinion that China has been jealous of the supposed advantages to the U.S. economy of the dollar being the world’s principal reserve currency with most key commodities like oil and gold priced in U.S. dollars. Thus China is assumed to be working to at least replicate the international role of the dollar with the yuan.

To this end a recent report in the South China Morning Post said that according to the IMF the role of the yuan in international central bank holdings increased sharply in the second quarter of the year, although still only accounts for 1.84% of the total.

The report notes that despite the progress the yuan’s share of total reserves remains modest and well behind that of the “big three” currencies – the US dollar, the euro and the Japanese yen – as a reserve asset. Even so, the share of China’s yuan in global central bank reserves rose one position, overtaking Australia’s dollar, to take sixth place among all currencies, despite mounting US-China trade tensions and a decline in the yuan exchange rate. That compares with the yuan’s 1.40 per cent share in the first quarter, 1.23 per cent at the end of 2017 and 1.07 per cent at the end of 2016. So its take-up by the international community is growing, but slowly. It has an awful long way to go yet if it is to get anywhere near matching the U.S. dollar.

14 Oct 2018

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

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