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Tuesday, July 31, 2018

China May Secretly be Adding Gold to its Reserves

Officially, Chinese bullion reserves sit at 1,843 tons of gold. However, their hoard could be much larger than the numbers released.

If history is any indicator, we could be nearing an announcement that the People's Bank of China (PBOC) expanded its gold holdings substantially, reports Newsmax. Officially, Chinese bullion reserves sit at 59.24 million ounces, or 1,843 tons of gold. The figure has remained unchanged since October 2016, shortly before Donald Trump was elected President.

However, according to the article there are signs that suggest China has quietly been adding to its reserves over the past two years. This means, they could be boasting a gold hoard much larger than the numbers given to the public. Before mid-2015, irregular updates by the PBOC weren't considered unusual as the country had only updated its official figures once between 2009 and 2015. Then suddenly, the PBOC revealed a 57% increase in bullion holdings over a period of six years.

The shift towards monthly updates since July 2015 coincided with stricter International Monetary Fund regulations, as China wanted to have the yuan included in the Special Drawing Rights basket. The updates ceased almost immediately after the yuan became part of the SDR in October 2016.

Analysts have little doubt that China's gold holdings have indeed grown since the last update states the article. In fact, Philip Klapwijk, managing director of Precious Metals Insights Ltd., views bullion acquisition by the PBOC as a strategic imperative.

Klapwijk referred to heightened trade tensions between the U.S. and China as the biggest reason why the latter would want to have as much bullion as possible. According to the article, the threat of escalation puts into question the future of China's massive export figures, and bolstering the central bank's bullion reserves would give the government more freedom amid economic constraints.

Klapwijk also pointed out that China's government has plenty of room to amass bullion even in the absence of international purchases. The people of China consistently rank among the top buyers of gold jewelry in the world, in large part because the average citizen is inclined to treat gold ornaments as an investment. If needed, the article writes that the PBOC could access the people's jewelry holdings to obtain a significant amount of bullion. Furthermore, as the world's largest gold miner, China retains the option to simply purchase its own ore rather than export it.

Mark O'Byrne, research director of precious metals broker GoldCore Ltd., is certain that China has already increased its gold holdings by a wide margin over the past two years. To O'Byrne, it's only a question of how large the figure will be when the update is finally revealed.

Expectations that China may have quietly added to its gold hoard over the past two years fit into a general view held by many market participants that China's bullion reserves are actually far greater than reported. Given the nation's propensity towards gold, both on a state- and consumer-level, some have speculated that China's true bullion holdings could be twice as large as the officially reported 1,843 tons.

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