LAWRIE WILLIAMS: Chinese Central Bank confirms 32 tonne gold purchase
It has long been suspected that China has been building its gold reserves either directly into unreported sections of its foreign exchange reserves, or into alternate government-controlled accounts held officially by third parties which can be claimed by the central bank as deemed necessary. These accounts may be held by sectors of the Chinese military or state-owned banks for example. There has usually been an aura of secrecy around such holdings, although from time to time the nation has, at least in part, lifted this veil of obscurity by announcing large gold reserve increases, citing transfers of gold from accounts that have not required to be reported. Also, back in 2018 it went through a period of reporting monthly gold purchases, but this was soon brought to an end and it was never clear whether the purchases had ceased, or this was just a return to the prior secrecy regarding such transactions.
Thus it came as something of a surprise when the Chinese central bank this week published figures on its website suggesting it had increased its gold reserve in November by around 32 tonnes. The World Gold Council had recently announced its research had indicated a significant increase in ‘mystery’ central bank gold purchasing in Q3 and there had been speculation that China may have been among these mystery buyers, although this would suggest that there may have been earlier buying by the central bank too, and that the high levels of central bank purchasing may be continuing into the current quarter as well.
China does have a huge foreign reserve position, the vast bulk of which is held in U.S. dollars and dollar-related securities. With the U.S. being seen readily to weaponise the dollar in its contretemps with Russia over the Ukraine war, it would certainly make sense for China to diversify at least some of its forex holdings away from the dollar and gold is probably the easiest, and the most stable, alternative. This could be particularly relevant as political tensions between the U.S. and China recently have been rising over Taiwan and the South China Sea.
There is also the potential for gold to play an important role in any forthcoming global reset of the currency system which many economists feel is coming within the next decade or two. This could involve the reduction in the position of the U.S. dollar as the world’s principal reserve currency perhaps by another dominant economy, or by a hybrid basket of currencies which may include gold, or be selected relative to a nation's deemed financial strength on which the size of their gold holdings may play a significant part. In this latter respect some observers and analysts have surmised that China may already be able to claim control over gold reserves at least equivalent to those claimed by the world’s top gold holder, the U.S. which reckons to hold a total gold reserve of 8,133.5 tonnes. China, according to what it reports to the IMF, plus its latest 32 tonne addition, perhaps only holds 1,980 tonnes – but who knows?
08 Dec 2022 | Categories: Gold, China, Dollar, US, Russia