Is China hiding its central bank gold in its commercial banks?

by Lawrence Williams, MineWeb The latest gold withdrawals figures from the Shanghai Gold Exchange (SGE) for the week ended February 6, which totalled another 59.3 tonnes, show that the demand spree ahead of the Chinese New Year, which falls next week – on the 19th – shows no signs of abating. Thus so far, in the first five weeks of the year, there has been a total of 315 tonnes of gold withdrawn from the exchange. This figure is, on its own, comfortably in excess of total global newly mined gold, which is a little less than 300 tonnes over the same period based on the latest GFMS and World Gold Council (WGC) annual new mined gold statistics. See the WGC’s latest Gold Demand Trends report. Interestingly, given the WGC’s assertion that a high proportion of SGE gold withdrawals is not actually ‘consumer demand’ as they assess it, but is being accumulated by the Chinese banks to be used in financial transactions and as collateral (See: Chinese gold demand discrepancy explained?) then perhaps we won’t see as big a fall-off in SGE withdrawals as is widely expected once the actual Chinese New Year date has passed. SGE withdrawal figures over the next few weeks will thus be of particular interest in judging what the overall Chinese off take figures might be for the full year, although this can fluctuate dramatically month on month. Regarding Chinese total gold off take, though, given the huge disparity between SGE withdrawal figures and estimated consumer demand by GFMS/WGC and others – could China be working along Turkish lines and, ultimately be planning to add its commercial bank gold holdings into its own reserve figures at some time in the future, or even just transfer them from commercial bank to central bank at some convenient time? After all the commercial Chinese banks are state-owned so their holdings could be considered part of the country’s overall gold holdings anyway. Thus if, for argument’s sake, we take GFMS/WGC estimates of Chinese consumer demand as being largely correct – and to have been so over the past several years, but with SGE withdrawal figures showing the true picture of total overall Chinese off take, then the commercial banks have been hoarding perhaps up to 1,000 tonnes of gold a year or more for the past few years. This would tie in pretty well with the general perception of China substantially raising its gold reserve levels, but holding the additional gold in accounts which are not declarable for the moment to the IMF and thus retaining the fiction that it only holds 1,054.1 tonnes in its official gold reserves. If this is the case then the true figure of gold to which the Chinese central bank has access could easily already be four or five times this level – or more, and rising by well over 1,000 tonnes annually. All this is supposition of course, but it is a supposition that would appear to tie in quite well with the available statistics.

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