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LAWRIE WILLIAMS: China’s official gold reserves level – as believableas Santa Claus or the tooth fairy

If you believe that China’s gold reserve figure is static at 1,842.6 tonnes, as the country’s central bank would have us believe, then you probably also believe in Santa Claus and the tooth fairy.  Well that’s the writer’s opinion but like all matters on Chinese finances the view is perhaps open to question given the nation’s assumed lack of transparency in its statistical announcements. 

With gold, the Asian giant has a long track record of continuously surreptitiously adding to its gold reserve, but only reporting such increases at multi-year intervals.  It has now been claiming its gold reserves have remained static for the past 13 months in a row (the November reserve level was announced as unchanged today), which goes against stated policy and also against the long-known overall financial policy of trying to reduce forex reliance on the U.S. dollar and U.S. Treasuries.  China has long considered gold as the ultimate supporter of its financial status in a likely restructuring of the global financial system and has almost certainly been building its gold reserves with the intent of achieving this aim and, in all probability, being somewhat economical with the truth in reporting its true financial position vis-a-vis gold in particular.

Indeed there is probably good reason to doubt that the country’s total gold reserve was even actually at the aforementioned 1,842.6 tonne level the last time it announced a revised total reserve back in October 2016.  That month was, as we have mentioned before, the month in which the Chinese yuan was finally accepted as an integral constituent of the IMF’s Special Drawing Rights basket (alongside the US dollar, the Euro, the UK pound sterling and the Japanese yen).  For just over a year ahead of this acceptance, China had been reporting monthly increases in its gold reserves, apparently in the interests of transparency.  Ever since that date, though, it has reported zero increases.  Given the size of the Chinese economy and China’s enormous involvement in global trade, its acceptance into this global currency club was a seemingly inevitable move and if it needed to fudge its gold reserve figures to facilitate that aim – so be it.

There are a number of expert followers of the gold market though, who suggest that China’s gold reserves are actually far higher than the stated total with the ultimate aim of matching, or exceeding, the official U.S. gold reserve total of 8,133.5 tonnes – itself open to some questions as to its true level.

Indeed much of the world’s official gold reserves could be open to question given the IMF relies on ‘official’ figures given to it from the individual reporting countries without running any checks.  Most gold reserve figures are not independently audited and could thus be open to exaggeration, or understatement, by the various countries which report, although the incentive for the majority of countries which hold only relatively small amounts of gold to do so is perhaps unnecessary.  What is not disclosed in the figures reported to the IMF, though, is the amounts of gold owned which may not actually be readily available due to gold leasing, or swap deals, which fall outside the reporting guidelines.

07 Dec 2017

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).

e: lawrie.williams@sharpspixley.com

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