LAWRIE WILLIAMS: Chinese CB reports zero addition to gold reserves in March – back to its bad o...
The Chinese central bank, the People’s Bank of China (PBoC), has reported yet another month of zero additions to its gold reserves for March this year – the fifth month in a row of official zero purchases, leaving Russia as comfortably the largest official purchaser of gold. In our opinion the Chinese position – it had supposedly been reporting monthly additions to its gold reserves from July 2015 – could well be more smoke and mirrors. It has a track record of only announcing gold reserve increases at five or six year intervals until it started publishing its monthly additions 20 months ago. Interestingly the zero monthly reports have only come about since the Chinese yuan (reminbi) was accepted as a constituent of the IMF’s Special Drawing Rights (SDR) in October. Could it be that the country has again reverted to its old secretive system of non-reporting of gold reserve increases until it feels it is politically expedient to do so – and even then no-one could be sure that the officially reported figures were in any way a true picture of the nation’s total gold holdings.
Officially Chinese central bank gold holdings as reported to the IMF total 1,842.6 tonnes. A number of observers reckon they may well be two or three times that number, or even more, and will only be made known when they exceed the US reported holding of 8,133.5 tonnes. Supposedly the US figure represents 74% of the nation’s foreign exchange reserves, whereas the Chinese figure is only around 2% of its forex reserves. The theory is that China sees gold’s role in the new world order, as the yuan gets to compete with the dollar as a global reserve currency, as being particularly important and thus needs to build its gold reserves accordingly.
In the second half of 2015, China reported additions to its gold reserves totalling 89.9 tonnes and in the first ten months of 2016 an additional 75.3 tonnes, although the reported monthly additions had been falling back quite sharply from January. But as the world’s largest gold miner, with an estimated output last year of a little over 460 tonnes according to Metals Focus (See: Top 20 Gold Producing Nations See Small Gain in Output in 2016) , the central bank could easily have purchased over 400 tonnes without impacting on its liquid currency and bond holdings. Given its past practises of hiding its gold holding additions in separate non-reported accounts, small wonder doubts are being cast on its latest figures. Indeed even its monthly-reported figures from July 2015 are seen as suspect too.
The coincidence (perhaps) that the monthly zero reserve increases have resumed since the Chinese currency was accepted as an integral part of the SDR, alongside the US dollar, the Euro, the UK pound sterling and the Japanese yen, is noted. There has been speculation that in the months preceding its acceptance as part of the make-up of the SDR that China was announcing monthly gold reserve increases in the interest of appearing to be transparent in its monetary moves. But since October last year the yuan’s inclusion in the SDR basket became a fait accompli and such ‘transparency’ was no longer needed. If this is indeed the case, with Russia still on track to add around 200 tonnes to its gold reserve position this year, as we have previously noted Russia could supersede China s the world’s fifth largest national holder of gold by early next year – at least as far as officially announced gold holdings are concerned.
China’s non-purchases will also contribute to an assessed fall in central bank gold buying this year. With Kazakhstan perhaps the only other regular gold purchaser for the time being by effectively taking its own production of around 3 tonnes a month into its reserves (the country produced 37.7 tonnes of fine gold in 2016), and with some other countries potential net sellers we could see central bank net purchases in 2017 falling to around 200 tonnes, compared with an estimated 380 tonnes last year and 480 tonnes in 2015 depending on whose figures one takes.