China Announces 5th Largest Gold Holdings in World
The People’s Bank of China (PBOC) announced today that it’s gold holdings have grown by 57% to about 1,658 metric tons. This is the first official update to China’s gold reserves since 2009.
China’s gold reserves are now the fifth largest of any country in the world and sixth when you include the holdings of the International Monetary Fund (IMF). Only the United States, Germany, Italy, and France hold more gold than China.
However, many believed China would announce even larger holdings than this. Ross Norman, CEO of bullion broker Sharps Pixley, told the Wall Street Journal, “The figure published by the PBOC is roughly half the market consensus on what we had thought they had accumulated…”
It’s true. Analysts around the world were expecting a much larger rise in China’s official holdings. As we reported in April, Bloomberg Intelligence predicted the PBOC could hold as much as 3,510 tons of the metal.
Jim Rickards – author of The Death of Money and one of the savviest commentators on the global economy – was also predicting much larger Chinese holdings. He did the math with Peter Schiff last August:
China officially says they have about 1,000 tons of gold, but we all know that’s not true. They have some number, no one knows exactly what it is, but you can make a reasonable estimate that they actually have 3,000 or 4,000 or perhaps even 5,000 tons of gold.
“Now, that’s not just guess work. How do we know that? Well, we know what their mining output is. It’s over 400 tons a year. We know what their imports through Hong Kong are. They’re about 700 tons a year. So you add that up, that’s 1,100 tons. I have information that I talk about in my book, that they’re bringing gold in through military convoys through central Asia that could be coming from Russia or Kazakhstan or elsewhere, so add that to the mix. They’re getting probably 1,500 tons a year. This has been going on for five years, so that’s 7,500 tons.
“What we don’t know is how much of that is going to private investment in China, how much of that is going to the government? We don’t know that number, but just use half and half as a first approximation. So right there, that would add over 3,000 tons to China’s reserves, so they’re probably close to 4,000 tons.”
So the question remains – is China still underreporting its gold holdings? Many analysts believe that China is stockpiling gold to stabilize its yuan currency in the eyes of the international community. This would make it more likely that the IMF would accept the yuan into the Special Drawing Rights (SDR) basket of currencies, a consideration that will happen later this year.
Ross Norman went on to tell the WSJ:
The interesting thing about the announcement is the timing. China has clear ambitions to create a global reserve currency to challenge the hegemony of the US dollar and to fill the void created by the declining holdings by central banks of the euro.”
Indeed, the timing cannot be a coincidence. Greece is reeling from its latest debt drama, having accepted even more unpopular austerity measures in exchange for a third bailout. Puerto Rico just announced that its debt is unsustainable. Inside the United States, municipalities and entire states are wrestling with underfunded liabilities and looming debt loads. Even Texas has shown distrust of the Federal Reserve and US monetary policy by announcing the creation of its own bullion depository.
It seems like there couldn’t be a better moment for China to announce much larger gold holdings and establish itself as a pillar of monetary stability amidst Western chaos. After all, by one measurement, China did elbow into the space of the largest economy in the world last year. Even mainstream analysts are looking ahead to China announcing a gold-backed currency as a direct challenge to the US dollar. Yet with this smaller-than-expected announcement, it appears that China hasn’t yet played its “gold card.”
Some analysts believe the announcement served to assuage some distrust of China’s economy in the face of its recent stock downturn. But maybe the best reason for China’s underwhelming announcement is also the simplest – it wants more gold at good prices. Commerzbank analyst Carsten Frisch told Bloomberg:
“They’ve added to their reserves for the same purpose as other banks… I don’t see why that trend will slow down. I think it will continue into the future at the same pace at least.”
The price of gold barely moved on China’s announcement, which means the yellow metal remains at bargain levels. A larger announcement could have sent gold surging, making it considerably more expensive for China to continue stockpiling at the same pace. But for now, there’s no reason to believe China will slow its buying. Will it be another six years before we learn the true size of its holdings?
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