When Will China Disclose Its True Official Gold Reserves And How Much Is It?

how much is 1 atm

When Will China Disclose Its True Official Gold Reserves And How Much Is It?


Things are heating up in the Chinese gold market

First let’s go through the latest Shanghai Gold Exchange data and then we’ll continue to discuss the most recent developments regarding Chinese official gold reserves.

Friday the Shanghai Gold Exchange (SGE) released its trade report of week 11, 2015 (March 16 – 20). Withdrawals from the vaults, which equal Chinese wholesale demand. accounted for 53 tonnes, up 3.91 % from the prior week.

Blue is weekly gold withdrawn from the vaults in Kg, green is the total YTD.

Year to date total withdrawals have reached a staggering 561 tonnes, up 7.3 % from 2014, up 33 % from 2013. When using the basic equation for the Chinese gold market to estimate import, we learn that up until March 20 China has net imported 412 tonnes. Add to this India has net imported about 230 tonnes over the same period, that’s 642 tonnes combined. I wonder how long the Chinese can keep up this pace of importing before physical supply from Western vaults runs dry.

Trading volume on the Shanghai International Gold Exchange (SGEI) has been 32 tonnes in week 11, which could have distort SGE withdrawals by 0.8 tonnes. (Read SGE Withdrawals In Perspective for more information on the relation between SGEI trading volume and SGE withdrawals)

When Will China Disclose Its True Official Gold Reserves And How Much Is It?

As most readers who are interested in gold will know, China’s official gold reserves are small in proportion to the size of their economy and their foreign exchange reserves. This disproportionate position has been difficult for China to escape from. Any slight move from their immense stock of US dollars into gold could disrupt the gold market, and thus the US dollar, spoiling the party for everybody.

China is forced to buy in secret. The latest update on the size of their official gold pile was in April 2009, when they disclosed to have 1,054 tonnes, up 454 tonnes from 600 tonnes, which they claimed to have since 2003. Common sense indicates the PBOC did not buy 454 tonnes in a few months; most likely they bought this amount in secret spread over six years (2003 – 2009). More common sense suggests they continued to buy in secret since 2009 and they hold at least twice

the weight they currently claim.

Last week I reported it’s very likely the renminbi will be adopted into the SDR basket this year and before inclusion China will announce their true gold reserves. All arrows point in the same direction, IMF chief Lagarde stated:

China’s yuan [renminbi] at some point would be incorporated in the International Monetary Fund’s Special Drawing Right (SDR) currency basket, IMF Managing Director Christine Lagarde said, …”It’s not a question of if, it’s a question of when,”

Next to what Lagarde and the IMF have stated, more “official” channels are hinting at changes to come regarding China in the international monetary system. Roland Wang, China managing director at World Gold Council, told Reuters on March 26 :

China currently holds about 1.6 percent of its foreign exchange reserves in gold, which is relatively low compared with developed countries and some developing countries, WGC China managing director Roland Wang said.

“The ideal amount should be at least 5 percent of its total forex reserves,” Wang told Reuters in an interview in Hong Kong.

The latest IMF data points out China’s total foreign exchange reserves, excluding gold, on December 1, 2014, were valued at 3.859 trillion US dollars. 1,054 tonnes at the price of gold on December 1, 2014 (37,600 US dollar for 1 Kg ), was a little over 1 % of total reserves.

If China would announce on Monday they hold 5 % of total reserves in gold, this would translate into roughly 5,000 tonnes.

Remarkably, the exact same day Reuters published Wang’s statement, Chinese newswire Caixin published a detailed story on gold in China’s monetary history and its potential function in the present and future economy, written by Hedge Fund manager Li Sheng:

Gold accounts for only 1.6 percent of China’s forex reserves. This is only a fraction of the figure in the United States and many other developed countries. If China ever increased the level to 5 percent, it would have an enormous impact on global demand for gold.

I think that if China will update us on their gold reserves, the total will be less than 5,000 tonnes. For clarity, I have little hard evidence on the amount of gold the PBOC or its proxies hold in reserve. However, the reason I think it will be less is because of what Song Xin, Party Secretary and President of the China Gold Association, wrote at Sina Finance on July 30, 2014:

Source: www.zerohedge.com

Category: Bank

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