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Commodities / Gold and Silver 2015 Nov 09, 2015 - 01:02 PM GMT

By: GoldCore

Commodities

- PBOC declared gold reserves now about 55.38 million troy ounces or 1,722.5 metric tonnes

- Central bank gold rose to $63.26 billion by end-month – less than 2% of $3.53 trillion FX reserves

- China disclosed on July 17th that its gold holdings had surged 57% since 2009

- China officially owns around 1,720 tonnes of gold  –  true total figure likely much larger

- China’s total gold holdings much higher as also owns gold in CIC


China’s central bank likely added another 14 tonnes of gold to its reserves in October as the People’s Bank of China (PBOC) continues to allocate to gold bullion as part of a plan to diversify its massive $3.53 trillion in foreign-exchange reserves and position the yuan as a global trading and reserve currency.


Gold prices rose 2.5 % in October but fell nearly 5% last week on continuing speculation of a possible Fed interest rate rise. Despite much poor U.S. economic data in recent weeks, the positive jobs number on Friday saw safe haven gold fall.

Based on the London Bullion Market Association (LBMA) afternoon gold price on the last trading session of October, China’s reserves likely totalled 55.378 million troy ounces or 1,722.5 tonnes at the end of last month. That would be an increase of about 14 tonnes from September. The PBOC reveals the dollar value of its gold reserves early in the month, before revealing the volume numbers later on.

China’s gold reserves rose by about 15 tons in September, 16 tons in August and the highest monthly purchase was nearly 19 tonnes in July.

China disclosed on July 17th that its gold holdings had surged 57% since 2009. China has overtaken Russia to own the world’s fifth-largest national gold reserves. China is the world’s sixth largest official sector gold holder after the United States, Germany, the International Monetary Fund (IMF), Italy and France.

The United States, believed to be the top holder of gold with more than 8,000 tonnes of bullion, has 73 percent of its total foreign reserves in gold, according to the World Gold Council (WGC). These reserves have not been audited in decades leading to some concerns about the exact amount of unencumbered U.S. gold reserves.

The value of China’s gold reserves stood at $63.261 billion at the end of October, compared with $61.189 billion at the end of September, the People’s Bank of China (PBOC) said on its website. Gold still makes up a tiny fraction – less than 2 % of China’s total foreign exchange reserves at $3.53 trillion.


The U.S. and Germany’s gold reserves are believed to be 74 percent and 68 percent of total fx reserves respectively.

This means that the PBOC reserve diversification into gold is likely to continue and indeed could accelerate should relations with the U.S. further deteriorate or in the event of a Chinese financial crisis or another global financial crisis. Both of which we see as likely.

China should increase its gold holdings to about 5 percent of its total reserves to help diversify currency risks, a WGC official said this year. China previously considered its gold holdings a state secret and did not report its holdings on a monthly basis to the IMF like Russia and most other countries.

It has begun doing so as it campaigns to include the yuan in the IMF’s special drawing rights basket. Before the June update, China had last revealed its gold holdings in April 2009. Then, China ended six years of mystery over how much gold it’s central banks holds as it seeks to position the yuan as a global reserve currency and for greater global use of its currency in international trade. It is also pushing for the yuan to be included in the International Monetary Fund’s Special Drawing Rights basket.

We believe the 1,700 metric tonne PBOC gold reserve figure is an understatement of total Chinese official and governmental gold holdings.

There have been enormous volumes of gold imported through Hong Kong – and through Shanghai in more recent years – and indeed very large amounts that have been produced domestically and remained in China. China is now also the world’s largest producer of gold.

It is important to remember that other entities, besides the PBOC, have also been buying gold – namely the China Investment Corporation (CIC). China has been accumulating gold bullion quietly through the CIC – indeed they have been buying hundreds of gold mines in South America, Africa and internationally in recent years – securing another important source of gold supply.

If the combined holdings of the PBOC and CIC were added together, China may well be the second largest holder of gold bullion – after the U.S. – assuming that U.S. gold reserve figures are accurate.

It is likely that, in total and between the three China’s financial institutions, China may in fact be holding much more than 3,000 tonnes of gold.

China is playing the long game and they could be low balling their total gold holdings – official central bank reserves and non official, governmental holdings – in order to maintain confidence in their substantial US dollar holdings and to aid their bid to join the IMF.

Central banks internationally still hold physical gold as financial insurance. Investors and savers should do the same and have an allocation to gold bullion outside of the banking system, in the safest vaults in the world.

Must-read guides to international bullion storage:

Download Essential Guide To Storing Gold In Switzerland

This update can be found on the GoldCore blog here.

Mark O'Byrne

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