LAWRIE WILLIAMS: China’s gold volume unchanged again in Dec. but forex total rises
The Chinese central bank has reported a larger than expected rise in its total foreign exchange holdings in December with a year-end total value of US$3.108 trillion, up around $12.3 billion in the month according to a Reuters report. This was put down to a rebound in value of the yuan, but perhaps has not really taken into account that a rise in the value of the nation’s gold reserves accounted for around a third of this increase, despite the country’s officially announced gold reserve volume remaining unchanged, at 1,984.3 tonnes. At the end of the year China’s gold reserves were valued at $95.406 billion, up almost $4 billion on the end-November figure despite the reserve volume remaining unchanged – at least as officially reported. The rise in the gold holdings value was thus due entirely to the rise in the gold price over the period. We continue to have our doubts upon the veracity of the officially announced gold reserve tonnage which has now remained unchanged for the past three months
As we reported last month, China had been reporting monthly gold volume increase levels since last December after around two years of reporting zero increases. It should be remembered that in the past China often went for several years claiming it wasn’t raising its gold reserves – and then 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 reserve total. We are inclined towards the former assumption given there is a history of Chinese government officials and academics suggesting that gold will play an important role in any global financial reset which may lie ahead.
There are plenty of analyst/commentators and China-followers out there who suggest that the nation’s true reserve figure is substantially higher than the 1,948 tonnes it currently reports to the IMF. But variations in the suggested levels of China’s gold reserve range from the current level up to perhaps as much as 20,000 tonnes. Indeed this latter figure has been bandied around as sufficient to support a supposed dollar-killing gold-backed cryptocurrency by the somewhat OTT commentator Max Keiser in a recent interview with Kitco’s Daniela Cambone. We are sceptical on this, but believe the actual total of Chinese held gold may well be 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.
So what is our evidence for coming up with this kind of figure? Again as we noted a month ago, 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 some unknown imports and scrap conversion. 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, up until last year when it fell to around just over 1,600 tonnes – see: China gold demand 20% down y-o-y. 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 estimated total supply which we think may be being surreptitiously added to te nation’s total gold holding.