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Has China Manipulated The Gold Market?

Commodities / Gold and Silver 2015 Jul 29, 2015 - 04:50 PM GMT

By: Arkadiusz_Sieron

Commodities

The financial press and blogosphere are still exploring the topic of Chinese reserves. Recently, some voices have arisen that China supported the recent plunge of the gold price in order to boost its reserves. Are these opinions justified?

The disappointment increase in China's reserves led to a heated debate. On Friday, two articles were published (here and here), which suggest that China manipulated the gold market by under-reporting its official reserves to lower the gold price and increase its reserves.


Well, it is a very interesting twist in the gold perma-bull story. Perma-bulls have been saying for years that Western banksters are behind the manipulation of gold prices, while China is a positive protagonist, who has been buying every possible ton of gold it could buy to undermine the financial control of Western central bankers. Now, the story is that China has handled the gold price, but do not worry - this is good handling enabling China to by even more gold and finally force the West into collapse.

This story makes even less sense when we realize that Russia is constantly reporting increases in its gold reserves (it added 800,000 ounces in June to its official holdings). Why do gold-bugs believe in Russia's official holdings and do not accuse it of price manipulation? Is not Russia interested in the bankruptcy of the U.S. dollar as well as China? In one article linked above we can read: "China is not ready to unsettle the global currency market by announcing how truly large its gold holdings are, because that would call into question the value of U.S. dollars and could be seen as an attack on the dollar." But Russia apparently is not afraid to reveal its gold reserves. There are also other problems with that suggestion. It implies that China generally wants to dethrone the greenback, but at the moment it is afraid to do so (but when will be the right moment for that?). It also implies that currency wars are not only about artificial depreciation to boost exports, but also about appreciation (by backing the currency with gold). Please, at least choose one version.

There is, however, one intriguing puzzle. The increase in gold reserves that the PBOC reported doesn't seem to square with publically available reports on the amount of Chinese gold production and imports since 2009. According to data, China has produced over 2,000 tons of gold and imported over 3,300 tons through Hong Kong since 2009 (it has imported also from Shanghai, but the numbers are undisclosed). So where is the missing gold? Well, the mined and imported gold did not have to get to the official holdings of the central bank. China is a large country with a lot of entities interested in gold, so the yellow metal could simply get to citizens, banks, large companies and the Chinese Sovereign Wealth Fund. Although it is possible that a portion of Chinese gold could easily become a part of the official reserves if need be and that the PBOC is probably able to buy gold in the domestic market, the reality is that the official gold reserves held by the PBOC are only 1,658 tons right now. The allegedly missing gold is not surprising, given the obvious fact that in a country inhabited by 1.4 billion people there are entities interested in holding gold other than the central bank.

Thank you.

Arkadiusz Sieron
Sunshine Profits‘ Market Overview Editor

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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