Dec 092015

In July I did a post on How much gold does China really have? which looked at the rate China was accumulating gold reserves based on their occasional announcements of how much gold they had. Extrapolating out their average monthly rate of 8 tonnes gave the chart below, which projected to 2,186 tonnes by the end of 2020.


Since then China has begun to report its gold reserves every month and has accumulated 86 tonnes in five months – an average of 17.2 tonnes. That is a lot more than their previous rate and you can get a better idea of the acceleration if I update the chart above with the new reserves figures and then project that rate into the future.


If China keeps at this rate then it will have 2,792 tonnes by the end of 2020, which is 606 more tonnes than I initially estimated. In my previous post I noted that official reserve additions plus commercial bank additions seemed to average 45% of monthly flow of gold into the Chinese market (that is, imports and newly mined domestic gold). The chart below shows these two estimates in green and blue.


What is interesting is that the average of the green and blue over the May 2009 to June 2015 (the two dates where reserves were announced) comes out at 17.1 tonnes a month (the red dotted line) which is very close to the average Chinese accumulation rate of 17.2 tonnes (the purple dotted line) since July 2015. The average of the June 2011 to June 2015, a period where inflows into China increased significantly, is 20.5 tonnes, which is close to the two largest monthly additions to China’s reserves.

These figures would seem to imply that now that China is reporting its reserves it can accumulate officially at the rate it was doing so unofficially in the past. Of course that theory implies that Chinese commercial banks would no longer be adding to their gold inventories, which seems unlikely as long as the gold market in China is developing and expanding. On the other hand, as financing trades unwind possibly the commercial banks are reducing inventories and this is being absorbed into official reserves.

I would also note that the above analysis assumes China adds to its reserves by sourcing from the domestic market only. Koos Jansen is of the view that China is acquiring 400oz bars from overseas markets. I do not discount that this may occur but my view is that even if done via the Bank Of China as Koos speculates (and I think that is the most likely candidate) such buying would be obvious to the Western bullion banks. If PBOC via BOC gold buying was consistent and ongoing I think it would make them prey to traders and hence my view would be that any such activity would be sporadic and tactical, taking advantage of times when western gold market demand was weak. As we receive more data over the next year on China’s reserves, commercial bank stock, imports and mining we should be able to confirm which theory is correct.

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  • joey

    It’s not rocket science, China has a heck of a lot more gold than 1,800 tons…

    • That Other Guy

      and so what?

      Imagine that they have some absurdly large stash – say 10,000 tons – what that tells us is that all that Chinese buying still wasn’t enough to prop the Gold price up and prevent it following all the other Commodities back down into the Earth’s Core from where they originally came

      You are going to have wean yourself off this phallusy sooner or later: whether or not “Gold Has Flowed From West To East” in profane quantities, it is quite clearly still flowing, there’s obviously still plenty of it available to keep flowing, and the price is still collapsing.

      What this surely tells us is that however great the Chinese desire to buy Gold, Western enthusiasm to sell it “at these prices” is greater still, because 17 tons a month is a piffling amount when there is anything up to 10,000 times that amount queued up waiting to be sold

      In reality***, if you look at the % of Reserves that the Peoples Bank of China holds in Gold and then compare that to the holdings of other nations , you’ll soon realise that the Chinese Government does not especially favour Gold as an investment asset, and any wet dreams that their purchases will somehow miraculously drive the price up are just that – wet dreams. Now, grab a fistful of Kleenex and then take a cold shower

      *** please put your hand up if you start feeling uncomfortable at this point

      • Anasteus

        Yes, there is still a plenty of available paper gold to keep flowing, perhaps infinite. In fact, as long as paper is fluently flowing there is no need to take care about the physical whatsoever. Even if zero ounces were available on the market the paper prices could still be flowing in low levels. Well, it could, until too many people start remembering its almost forgotten role of sound money throughout thousands of years in history; and all of them at the same time. Then they’ll stunningly realize there will be zero ounces available, even if at zero price.

        The imaginary systemic manipulation is not that imaginary once we remind of the autumn 2011 when gold attacked 2K level. Despite growing occurrence of in-favor-of-gold fundamentals worldwide, a free fall happened. That repeated several times also during the permanent QE. Do you really think that somebody believes that an inexplicable ‘in medias res’ occurred by losing appetite during the most tasty moments? I don’t. But what I believe is that the unleashed fiat issuers could have got panicked when they realized a trivial consequence of abandoning the paper in favor of gold on large scale. That would be a catastrophe and a literal systemic disaster! Avoiding this is certainly worth of any sort of manipulation.

        As regards the stackers, I’d personally prefer gold at $0 and would very much like to increase my pile by several metric tons of this worthless barbarous relic. In accord with the wannabe stackers in the East, of course.

        • That Other Guy

          Well, we appear to have boiled this discussion down to a simple matter of Documented Facts vs Hyped-up Emotion

          Has it ever occurred to you that the spike up to $1900 might have been an unsustainable bubble, and the subsequent retracement merely a reversion to reality?

          If Gold is such a rare resource in the West, yet so in demand in the East, how come the Americans and Western Europeans clearly hold loads of it (both proportionately and in absolute terms), but the Asians don’t? And to pre-empt Bron’s next remark – if you don’t believe the COMEX figures represent “real” physical metal, why do you believe the Chinese figures necessarily do? Aren’t the Chinese world-famous for iffy stats and dodgy fakery?

          As I mentioned above, I apologise to those of you listening to this in Black & White at home in Alabama – it wasn’t my intention to embarrass you with such uncomfortable notions, please, by all means – “Keep Stackin'”

          • MonetaryPerspectives

            How come Westerners don’t own gold?
            Firstly, they’re ignorant of recent and more ancient history, focussed only on the here and now.
            Secondly, there is a significant bias towards financial products in the West.
            Thirdly, Westerners are mostly ignorant of what lies ahead, the bubble that is bursting.
            One sides is correct, the other is wrong, time will show us, but you’ll be long gone at that point I suspect.

        • Anasteus

          The Other Guy, from hyped-up emotions to fabricated documented facts and half-truths…

          “Has it ever occurred to you that the spike up to $1900 might have been an unsustainable bubble, and the subsequent retracement is merely a reversion to normality?”
          No, bubbles burst when the market is satiated and already bored of the trend that goes nowhere or is apparently beyond fundamentals. This was not the case in 2011; exact the opposite, the situation was heating and the prospects of gold were one of the most discussed topic those days.

          Really Asians don’t? As far as I know both Chinese and Indians have 10,000 tons each scattered among the people, outside the official banking reserves, and still growing. I don’t think it’s that little.

          Well, I believe the COMEX number, having few dozen tons of available deliverable gold seems to me quite plausible.

          Yes, you’re right, no one can be sure about the validity of presented facts, this way or another. In such cases I try to grab as much information as possible and to find the most logical explanation that makes sense to me.

        • Kid Dynamite

          “Yes, there is still a plenty of available paper gold to keep flowing,
          perhaps infinite. In fact, as long as paper is fluently flowing there is
          no need to take care about the physical whatsoever.”

          but surely you must understand that MASSIVE PHYSICAL DEMAND is most positively not being satisfied by “paper gold”. It’s being met by MASSIVE PHYSICAL SUPPLY

          • That Other Guy

            Cut it out, KD! – we’ll have none of that “logic” nonsense around here thankyou very much!

          • Anasteus

            Sure I understand it, Kid. In such a case all attempts to artificially suppress the price would eventually inevitably fail.