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Could China Be Secretly Building Up Its Gold Reserves?

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Could China be secretly pumping up its gold reserves?

Officially, the People’s Bank of China hasn’t added any gold to its hoard since October 2016. But some analysts don’t think the Chinese have stopped accumulating gold. They think they’ve just gone silent. 

There is certainly precedent for this.

In 2009, the People’s Bank of China stopped reporting its gold holdings. Then in June 2015, the Chinese central bank suddenly announced its gold hoard had grown by 57%. With that announcement, China leapfrogged Russia to become the fifth-largest holder of gold in the world.

For a little more than a year, the PBOC regularly announced additions to its gold reserves. Chinese gold holding rose another 185 tons over the next 16 months before it suddenly went silent again.

Meanwhile, countries like Russia, Turkey and Kazakhstan continued to steadily increase their gold reserves. Kyrgyzstan and Mongolia have even gone on gold-buying sprees. Earlier this year, the Russians officially jumped back over China to become the fifth-largest gold hoarder in the world.

Gold offers countries some measure of independence from the US dollar. That means more political and economic independence and stability. Gold could even play a key role in a strategy to dethrone the greenback. Given the political dynamics and the escalating trade war, it seems unlikely the Chinese suddenly stopped increasing their gold reserves in 2016.

A recent article in Bloomberg speculates that PBOC is likely still adding gold to its stash. It’s just keeping quiet about it. As the article points out, “A potential trade war with the US that threatens growth, simmering tensions on the Korean peninsula and this year’s slump in gold prices are reasons to buy.”

Hong Kong-based Precious Metals Insights Ltd. managing director Philip Klapwijk told Bloomberg there are certainly incentives for the Chinese to increase gold holdings.

The strategic imperative is probably still there to add some gold to reserves quietly bit by bit. The reason to own gold as a portfolio diversification is even better given the rather strained relations with the US.”

A Dublin-based precious metals analyst told Bloomberg he’s pretty certain that at some point in the future, the PBOC will announce it has increased gold holdings significantly. The question is really just by how much.

When that might happen is anybody’s guess. Probably when the Chinese recognize some strategic advantage in doing so. China started announcing its gold holdings in 2015 as it pushed to have the yuan included in the International Monetary Fund’s special drawing rights (SDR) basket. That happened in October 2016, the month China stopped announcing increases in its gold reserves.

Some analysts believe the Chinese intentionally underreport their gold holdings even when they do make official announcements. As James Rickards pointed out on Mises Daily back in 2015, many people speculate that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE).

As we’ve been reporting over the last year, gold appears to be a big part of Russian and Chinese plans for economic independence by shifting away from dollar-based trade. Given that backdrop, it seems highly unlikely that the Chinese are not adding to their gold holdings. In fact, they are probably aggressively buying gold, despite what they are telling us.

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