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LAWRIE WILLIAMS: Chinese central bank stops buying gold – or does it?

According to the latest figures from the People’s Bank of China, it stopped adding to its gold reserves in October, after reporting additions to them month-by-month for the previous 10 months albeit at a seemingly diminishing rate of accumulation.  That leaves its overall gold reserves, as reported to the IMF, of just under 1,950 tonnes, but one somehow doubts this represents the true picture.  Whether the apparent hiatus in reporting purchases is genuine, or just represents a return to the bad old days when China would announce zero increases in its gold reserve but, all the while, was building them and would report subsequent big increases at multi-year intervals, remains to be seen.

On Chinese gold reserves we have continuously been sceptical of the official figures as reported to the IMF, suspecting that the true figure is actually far higher being held in accounts which the Chinese  does not report as a part of its forex reserves.  On this subject it is interesting to recount the opinion of the over-bombastic, but sometimes astute and always entertaining, Max Keiser, in a recent interview with Daniela Cambone of Kitco.  During the interview Keiser averred that China in reality held gold reserves of over 20,000 tonnes and was poised to release a gold-backed cryptocurrency designed to drive the U.S. dollar, and presumably all other fiat currencies, down to a zero valuation.

Keiser’s assertion does seem to be somewhat out on a limb, but with the secretive Chinese who knows?  A number of other China-followers and gold analysts do indeed believe that China almost certainly holds more gold than it reports officially but few would put this as high as 20,000 tonnes.  (For reference the largest national gold reserve currently reported to the IMF is the U.S.’s 8,133.5 tonnes, followed by Germany’s 3,366.8 tonnes).  It somehow seems doubtful that China holds quite as much gold in its government accounts as Keiser suggests, but it could have access to much higher levels than it reports if it includes gold holdings in the Chinese banking system and additional gold that could be mobilised by confiscation of the yellow metal held by the nation’s citizens.  China has, over the past few years, encouraged its citizens to buy precious metals and this is thought by some to be part of a long term plan to increase the nation’s available gold holdings.  This could help China position itself as top dog in any global monetary reset which may well come about should the current system collapse under the huge debt levels being built up by many nations.

Meanwhile the gold price seems to be going through a weak phase for, in our view, no particular reason.  Some positive U.S. data has appeared, which always knocks the price back, but equally negative data seems to be largely ignored.  There has obviously been some delayed reaction to the statements following last month’s FOMC meeting which suggest that another interest rate cut this year is unlikely, as are further rate cuts in early 2020.  The Fed will be viewing the reaction to this by equities markets as it seems set on doing what it can to stabilise, or enhance, equity valuations.  However we see these as precarious and should they start to turn down significantly, the Fed could rapidly reverse its position.

08 Nov 2019 | Categories: Gold, China

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