Monday, July 20, 2015

Reaction to Chinese Announcement on Official Gold Reserves

It has been interesting to see the reaction across the media spectrum to China's announcement that they now own 1,658 tons of official gold reserves. The news is being met with skepticism by virtually everyone. Jim Rickards is not surprised at the new announced total because he predicted China would understate the total in an article in May this year. But even he likely believes that China has at least 3,000 tons or more. He has stated this in various interviews in the past year.

Regardless, China has made their announcement and the reaction has been pouring in. Below are links to a variety of reactions. 


"This (figure) was not unexpected. If anything, it was slightly surprising that it wasn't more," Bhar added. "The market was looking at a figure north of 2,000 tonnes."

Stephen Leeb:  “I would be very surprised if the Chinese don’t have more gold and possibly significantly more gold than the U.S. claims it possesses (8,100+ tonnes).  I certainly would not be at all surprised if the Chinese have 15,000 tonnes of gold….

The latest total is about half what the market thought it was. The market was generally expecting a total of well over 3,000 metric tons, according to Brien Lundin, editor of Gold Newsletter.
“There is much evidence that [China’s] holdings are actually at those higher levels, which makes one wonder why they would feel compelled to understate the total now,” he said.

. . . . "while we welcome some long overdue "transparency", the number is well below official expectations. This is what Bloomberg said previously: "The People’s Bank of China may have tripled holdings of bullion since it last updated them in April 2009, to 3,510 metric tons, says Bloomberg Intelligence, based on trade data, domestic output and China Gold Association figures. A stockpile that big would be second only to the 8,133.5 tons in the U.S."

Mining Weekly - Skepticism over China's "incredibly small" gold holdings

"China’s announcement on Friday of “incredibly small” official gold holdings – at a level less than half of the market consensus – has been met with scepticism.

“We don't believe the figure, but we struggle to understand the motivation for down-playing it,” London bullion broker Sharps Pixley commented."

Added comments: 

The above are just a few examples. If you Google this topic you get a long list of similar articles announcing the news and questioning the amount of reserves announced. You see a lot of people wondering why China would understate their gold holdings. Jim Rickards says it is because China wants to join the "big boys club" at the IMF and get the Yuan added into the SDR currency basket. He says they agreed to understate their holdings so as not to rock the boat at the IMF.

One thing this news does is kill the idea that China is planning to announce they are backing the Yuan with gold any time soon. There is no way they could do that with the amount of gold reserves they just announced. They would have to admit they just lied about their gold reserves which is not how China usually does things. It seems clear that they intend to continue to work within the IMF to get what they want and will slowly build up the AIIB and BRICS Bank over time as well. Nothing about this indicates a direct backing of the Yuan with gold any time soon. Instead, it suggests China will just continue to try and get international acceptance of the Yuan using a variety of approaches (including boosting gold reserves). China tends to move much slower than people expect.

Meanwhile, the recognized expert on this subject (Koos Jansen) weighs in on this news with this new article. Koos basically agrees with Jim Rickards suggestion that China probably has more official gold reserves, but wants to understate them for now. He does provide analysis which supports the fact that very large volumes of gold are coming in to China, but he thinks most of that is probably going into privately held hands. Here is a quote from this article:

"With the US having the power to obstruct renminbi inclusion into the SDR, the Chinese have to play it safe. They are required to be transparent about their true gold reserves, but may not want to upset the US by disclosing an official gold reserve figure at 3,500 tonnes. The 1,658 tonnes figure, which is too little to rock the global financial order, though a sign that China assesses gold to be “an important element of international reserve diversification” may thus be an appropriate figure. It’s not in China’s interest to rush into a new international monetary system as they continue to diversify away from the US Dollar."

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