LAWRIE WILLIAMS: Chinese central bank adds 11.2 tonnes of gold in March (now corrected)

Apologies for a typo in the original article - 189% in para 3 should have read 1.89% - now corrected

One of the big questions for gold this year is whether official purchase will be maintained at anywhere near last year’s level of 651.5 tonnes – the highest level since 1971 when President Nixon ended the U.S. dollar’s gold convertibility and launched the fiat currency era.  Despite Russia and Kazakhstan seen as likely continuing monthly purchases at similar levels to 2018, when the former bought just over 274 tonnes and the latter 50.6 tonnes, accounting for almost 50% of official purchases, the general consensus has been that the totals reported to the IMF might slip a little this year.  But the likelihood of official purchases matching, or even exceeding, last year’s total have been enhanced by China returning to announce monthly purchases as from December last year.

Thus, this year China has announced purchases each month to date with the latest 11,2 tonne increasing March, making a total of almost 33 tonnes in the first quarter of the year.  At this rate China would add over 130 tonnes in the full year.  What we don’t know of course is whether the country also added to its gold reserves over the previous 24 months of reporting zero increases in its reserves to the IMF.  It has a track record of building its gold reserves under the radar for several years in a row and then announcing big rises.  Has that been the case also for the past couple of years.

Overall one suspects China is, like Russia and probably some other nations too, in diversifying its reserves away from dependence on the U.S. dollar as a reserve currency.  The U.S. has been demonstrating its readiness to use the dollar, and its links to global trade, as a weapon to try and bring enemies and allies into line with its global foreign policy, and is running into problems where U.S. policies are not necessarily allied to those of friend and enemy alike.  As pointed out in an article in Grant Williams’ excellent ‘Things that make you go hmm..’ newsletter (www.ttmygh.com) the usage of other currencies – notably the Euro and the yuan – as reserve currency elements are growing at the U.S. dollar’s expense.  Quoting the U.K.’s Daily Telegraph, it was pointed out that the U.S. dollar’s share of global central bank monetary reserves fell  to a still dominant 61.94% in Q$ 2018 – the third successive month of falls.  Meanwhile the Euro’s share rose to 20.69 percent – the highest level for four years despite Brexit uncertainties, and the yuan to a still very small 1.89%, the highest level since the IMF started reporting these levels in Q4 2016.  The movement is slow at the moment but the more the U.S. weaponises the dollar, the more this trend will likely continue.

Threats to withdraw access to SWIFT, the key transfer element in global trade, to countries which ignore U.S. economic sanctions (even where it is not their own policy) has seen China create an alternative (with CIPS).  A number of Russian banks have joined this system already which is significant given the two countries’ growing trade links, particularly with respect to oil and gar supplies from Russia to China.

The article ends with the comment: “Excluding political enemies from the global dollar system will remain a weapon that can be used at Washington’s whim. But the more the dollar is weaponised against individual countries, the more likely it will be that they will seek alternatives that will bypass the US currency. Although it will take some time for the dollar to be dethroned, current US policies could accelerate its demise as the reserve currency of choice...”

The latest TTMYGH newsletter largely concentrates on the enormous vulnerability in the semiconductor sector where equities have soared despite huge warning signs that the sector is turning down hugely.  This follows on from TTMYGH Newsletters highlighting the big downturn in the global motor manufacturing sector and on the collapses which are becoming very apparent in the retail sector.  This suggests a serious recession ahead with equities crashing from their rose-tinted highs.  As Michael Lewitt would say in his Credit Strategist newsletters – “Buy gold and save yourselves!”  We think the yellow metal’s day cannot be far away now.

08 Apr 2019

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