China increasing Central Bank gold reserves?
From its latest Gold Demand Trends data the World Gold Council now apparently believes that China is likely buying gold for its official purchases - and in quantity.
Lawrence Williams
February 17, 2012
www.mineweb.com
LONDON (MINEWEB)
We have long expressed the viewpoint on Mineweb that China has been surreptitiously raising the amount of gold it holds, but doing so in an account which is not reported as part of its Central Bank holding until it is considered expedient to report this. Thus it is encouraging that the World Gold Council#&39;s Marcus Grubb, in interviews with Mineweb#&39;s Geoff Candy (see - Gold#&39;s year of two halves -Marcus Grubb) and with London#&39;s Financial Times, suggests that a part of the big increase in Chinese gold imports in the final quarter of last year is probably due to Central Bank buying. World Bank statisticians have perceived what they think is about a 36 tonne discrepancy between reported imports via Hong Kong - the main import route for gold into China and local demand for gold jewellery, bars and coins with the implication that this has been purchased by government sources buying on dips in the price.
With China estimated to have produced about 100 tonnes of gold domestically in the quarter, and the fact that it does not allow exports of gold, the perception is that China may effectively have taken some 130 tonnes of gold, or perhaps even more, into its reserves in the quarter. If this is indicative of the policy being followed since the country last reported its gold holdings as being 1,054 tonnes back in 2009, then China#&39;s gold reserves could be being built up faster than most observers have estimated.
The whole trouble here is a lack of transparency as regards China#&39;s gold imports, production and Central Bank holdings so all this is speculation, even as far the kind of detailed analysis conducted by Thomson Reuters GFMS on behalf of the World Gold Council is concerned. Effectively analysts are working in the dark. As we pointed out here a couple of weeks ago in an article entitled China#&39;s gold output and demand could be far greater than #&39; official#&39; data suggest, both China#&39;s gold production and import figures could actually be substantially understated with official figures apparently not taking into account imports through other channels than Hong Kong, byproduct output from the country#&39;s big custom smelting sector and production from small mines outside the China Gold Association.
With all Chinese gold output having to be sold through official channels, and if indeed China is also buying on the open market too and not trading at all, then it could be building reserves at around 500 tonnes a year, which would put annual total Chinese gold intake (government and individual) at well over 1,000 tonnes making it already well ahead of India as the world#&39;s biggest consumer if one takes official purchases into account.
Yesterday we also published an article drawing on the views of a top German analyst, Sascha Opel - see China to add #&39; several thousand tons#&39; of gold to reserves over next 5 years: Opel - and now the World Gold Council#&39;s views do seem at least to lend backing this view. Warren Buffett and the Wall Street Journal may pour scorn on investment in gold, but if indeed China is buying gold for its reserves at this kind of rate gold could yet have quite a way to run - or at least maintain current price levels for some time to come, perhaps indefinitely, or at least until the Chinese yuan becomes at least a part of the world#&39;s official reserve currency which seems inevitable sooner or later!
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