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LAWRIE WILLIAMS: Christian avers China gold reserve transparency

As readers will be aware, China,. after a 2-year hiatus, announced a 9.95 tonne increase in its official gold reserve figure for December.  Given the country’s long term track record of hiding its gold reserve increases and then providing notice of massive rises at 5 or 6 year intervals, we suggested that this was just a ploy to muddy the waters and that what was being reported by the world’s second largest economy considerably understated its true gold reserve position (See: China’s Cynical Gold Reserve Increase?).

However in a recent interview with Kitco.com, the CPM Group’s founder and CEO, Jeff Christian, disagrees and is seemingly prepared to accept China’s transgressions in this respect as being in the past and that the latest gold reserve increase announcement represents a new attempt at transparency and that China’s gold reserve figures as reported to the IMF are accurate. The CPM Group is arguably North America’s foremost metals analytical consultancy and has its own track record of providing excellent data on global metals supply and demand, with a particular expertise in precious metals, so this opinion should not be ignored.

Christian himself is something of a bête noire to the right wing gold investment community - as represented by the Gold Anti-Trust Action Committee (GATA).  He is an outspoken non-believer in the gold price being suppressed by the powers that be. GATA has indeed presented good evidence that the gold price has probably been suppressed in the past, with the implication that it is still being so today, and points to some strange goings-on in the gold futures markets and occasional instances of prosecutions being raised against individual bankers for illegal market manipulation, as evidence that gold price suppression is alive and well. Christian goes on record as saying that the idea that the gold price is being suppressed is ‘nonsense’ and that massive sales of gold futures at key points whenever gold seems to be taking off, is a function of concerted computer-generated algo trading all acting similarly on the same data points. Also he contends that GATA conveniently ignores upwards price spikes, while only acknowledging downwards ones. We tend to disagree with Christian on this point as the occasional massive downward spikes we have seen do seem to be much more severe than any upwards ones – at least in terms of associated trade volumes on the futures markets. It will thus be interesting to see what transpires in the weeks ahead now that gold appears to have broken upwards through the psychological $1,300 level again.

On China’s true gold reserve position we may also disagree with Christian, but to be fair he has better Chinese connections than we do and should thus be better informed. But even so China’s past performance in rather obviously suppressing data on its real gold price build-up is difficult to ignore. We still think it unlikely that China’s gold reserves are as low as they are reported to the IMF, but where they actually are is more difficult to assess – anywhere from around 1,850 tonnes as currently reported to perhaps 5,000 tonnes or more. In the past when China has announced big gold reserve increases, as with the 600 tonnes plus gold reserve rise it announced in July 2015, it is said to have stated that this gold was being held in an alternative account from its forex holdings and thus did not need to be reported to the IMF. It is the size of this alternative account, whether it still exists, and if so whether or not it still holds gold, which is the big unknown here.

China is comfortably nowadays the world’s largest gold producer and year in, year out, there is a large discrepancy between this production plus known gold imports set against Chinese gold consumption as assessed by the world’s top precious metals consultancies. There are almost certainly additional ‘unknown’ gold imports too as China itself does not report these import figures, so the discrepancies may well understate the true position.  The ‘known’ import levels are from countries which themselves release comprehensive country-by-country export stats – like Switzerland, the UK, the USA, Hong Kong and Australia.

However, although we tend to disagree with Christian, the evidence we use for our own figures is purely circumstantial, while Jeff Christian and his CPM Group’s data is arguably more based on factual figures as presented by their Chinese contacts. It’s just a question of how accurate is the data received from these contacts and in a country where secrecy on such figures is paramount we are not convinced they are any more accurate than our suppositions. The jury is out!

26 Jan 2019 | Categories: Gold, China

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