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LAWRIE WILLIAMS:Chinese central bank gold purchases still slowing

With only two national central banks reportedly taking in truly significant amounts of gold into their reserves on a month-by-month basis – namely Russia and China – the monthly reports on these countries’ reserves will be coming in for particular scrutiny from gold analysts.  And it appears that both nations may be cutting back on gold reserve increases for now.

The latest report from the Chinese central bank announces that it has increased its gold reserve in August to 58.95 million fine troy ounces (1,833.5 tonnes) at the end of the month, from 58.79 million fine troy ounces (1,828.6 tonnes) at the end of July.  This small increase of only 4.9 tonnes follows on from a similarly small rise in reserves of 5.3 tonnes in July, 14.9 tonnes in June and no increase at all in May, as against an average monthly increase of 16 tonnes a month since it has been reporting monthly increases from  the second half of last year.  Prior to that it had been reporting gold reserve increases only on a five or six year basis, commenting, at one time, that these gold additions had been held in separate accounts which did not need to be reported to the IMF.

It has been suggested that China has been reporting these monthly increases as it has felt the necessity of being more transparent in its gold dealings in the runup to the yuan becoming part of the IMFs Special Drawing Right (SDR) at the beginning of October.  But then what is transparency in Chinese terms?  China only tells us what it wants us to believe and there remains considerable speculation that it is still continuing to understate true its true gold reserve size.  We have commented here that perhaps the very large holdings by the Chinese commercial banks – reported at around 2,700 tonnes as at the end of last year according to the banks’ annual reports and as compiled by China watcher and gold researcher Koos Jansen, writing on , may in part be held on behalf of the central bank.  All these banks are effectively state-subservient so could be called upon to surrender their gold to the state, although much of it is certainly tied up in gold leasing contracts and other gold-based financial instruments as well as being held on behalf of customers.

The other potential large holding of possibly state-accessible gold in China is the undisclosed amount held by the Shanghai Gold Exchange (SGE).  This is a subsidiary of the Chinese central banks so this could be seen as an unreported additional gold reserve.  But then there could also be other undisclosed government accounts which have been set up to hold gold – perhaps bought directly from China’s gold mines.  After all, China is the world’s largest gold miner – comfortably so.  Last year it is reckoned by precious metals consultancy, Metals Focus, to have mined around 460 tonnes of gold, while the world’s No. 2, Australia, only managed a gold output of around 274 tonnes.  Russia could be heading for the No. 2 spot as it has been closing the gap on Australia and was reckoned to have mined some 269 tonnes of gold in 2015.  As we commented here before, should Russia manage to move into second place, the two largest buyers of gold for their reserves would also be the world’s two largest producers of gold.  That should probably not be seen as totally coincidental.

It is probably still too early to tell if the recent monthly smaller gold reserve increases by China and Russia demonstrate an overall trend, particularly given that second half of the year figures tend to move upwards, but it does wave a red flag, and coupled with some big gold sales by Venezuela there is little doubt that net central bank purchases this year are likely to comfortably down on the 2015 ones.  That will throw some of the big gold consultancies’ projected 2016 supply/demand figures out of kilter!

08 Sep 2016 | Categories: Gold, China

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