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LAWRIE WILLIAMS: Chinese Gold Reserves Up Another 15 t as Forex Reserves Tumble $43bn

Lawrie Williams

Latest gold reserve figures from the Chinese central bank show that the country added another 15.01 tonnes in September.  At September’s average gold price that will have equated to around a little under US$600 million in value.  But total Chinese forex reserves dived by a massive $43.3 billion to their lowest level in over two years, so the official gold purchase figure – if it is to be believed – forms only a very small part of this.

Some see the additional gold taken into the bank’s coffers as yet another indication of China’s intent to diversify its forex reserves out of the dollar, but the amounts are tiny relative to the size of the country’s overall forex reserves which still sit at a massive $3.5 trillion! The big September fall (1.2%) in the latter either suggests a huge programme of mostly dollar denominated sales in order to maintain the country’s current currency relationship with the greenback and to help prop up the domestic economy, or perhaps some other unknown transactions involved – or a combination of both.

We can speculate that one such other transaction could be that China is buying much more gold than it is saying and holding it in other accounts which it doesn’t feel the need to report to the IMF as part of its official gold reserves.  It has done this in the past – for example claiming that its gold reserve total was unchanged from April 2009 to June this year and then suddenly announcing it had miraculously risen from 1,054 tonnes to 1,658 tonnes at the end of that month.  A rough calculation suggests that it had thus been buying an average of 8 tonnes a month over that six-year period – a figure which few analysts consider credible in that even some of the more conservative ones feel the country’s actual purchases have been perhaps more than 30 tonnes a month over that period of time. 

Since the uprating of its official gold reserve figure in June, China has been reporting ‘official’ monthly gold purchase figures in the interests of ‘transparency’ – 19 tonnes in July, 16 tonnes in August and now 15 tonnes in September.  But nothing in the Chinese economic system is truly ‘transparent’ in terms of official reporting, so why should anyone really believe the new monthly gold purchase figures either?  Indeed perhaps the real question is whether we should believe any of the global national official reserve figures shown in the table of top 20 official national gold reserves noted below.  Almost all countries are known to ‘manage’ their official statistics to suit their political masters and most have not reported any reserve changes for far longer than the Chinese non-reporting periods.

World Top 20 National Gold Reserve Holders

   

Tonnes

% of Forex Reserves

1

United States

8,133.5

73.0%

2

Germany

3,381.0

67.5%

3

Italy

2,451.8

65.5%

4

France

2,435.4

65.5%

5

China*

1,708.7

1.7%

6

Russia

1,317.7

13.1%

7

Switzerland

1,040.0

6.3%

8

Japan

765.2

2.2%

9

Netherlands

612.5

56.6%

10

India

557.7

5.7%

11

Turkey**

517.1

15.5%

12

ECB

504.8

25.8%

13

Taiwan

423.6

3.5%

14

Portugal

382.5

73.8%

15

Venezuela

361.0

67.3%

16

Saudi Arabia

322.9

1.7%

17

United Kingdom

310.3

8.8%

18

Lebanon

286.8

20.3%

19

Spain

281.6

18.8%

20

Austria

280.0

43.9%

*Adjusted for latest Chinese reported reserve addition

**Gold has been added to Turkey’s balance sheet as a result of a policy accepting gold in its reserve requirements from commercial banks.

Source: IMF, World Gold Council, LawrieOnGold

As to the possibility of additional Chinese gold purchases, it was interesting to note that when gold plunged to a five-year low of below $1080 briefly in early August, sentiment towards gold was very low.  As we’ve pointed out before virtually every bank analyst was predicting gold would fall back to $1,000 and below – yet gold’s fall was halted in its tracks – and ever since then has trended upwards.  Some speculate that it was some heavy Chinese buying which halted the price drop and then reversed it.  Given that China had been encouraging its citizens to buy gold (and silver) for their personal savings it is probably not in its interests to see gold fall too significantly and put a dent in middle class savings, so some intervention might not be out of place.

On the latest gold price performance the metal had been battling first to break through the $1150 mark on the upside and is, at the time of writing, struggling to stay above this psychological level – all this in the assumed absence of Chinese demand in that the country has been effectively closed for the past six days for the Golden Week holiday.  China returns to the fray tomorrow.  Could this return lead to a decisive breakthrough above the $1150 level now it has been breached initially? 

Likewise silver is pushing the $16 level, although having trouble breaking through.  With the gold:silver ratio at around 72, many still feel silver is still heavily undervalued in comparison with gold despite the ratio coming back from near the 80 level.  If gold does move up from the $1150 level we could at last start to see some fireworks in silver.

07 Oct 2015

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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