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.

Uncovering Gold Ownership in America

While polls offer only limited insight into how much gold Americans own, history could give us a better clue.

The statistics of gold ownership in the U.S. are difficult to track. It's known that the nation occupies high spots on the lists of top gold consumers and biggest gold hoarders, but past that point, data is relatively muddled.

Polls show that Americans continue to rank gold highly as an investment, with the metal landing third on a recent list of the best-perceived long-term investments. This data, however, offers only limited insight into how much bullion Americans are buying. Even the U.S. Mint's statistics, which show $1.2 billion worth of gold coins being sold in 2015, does little to inform us about individual purchases.

Writing in the LA Times, James Ledbetter believes that a look at history might give us a better clue of where gold sits with American investors. Despite being illegal to own between 1933 and 1975, gold remained a very popular investment in the country.

When gold was first confiscated in the 1930s, the hoard of privately-owned gold was estimated to be at $1.4 billion, a massive amount that was twice the size of the Bank of England's reserves. After the government tried to  buy up all the remaining gold, the Treasury estimated that $287 million in gold coins still sat with people.

Clearly, Americans didn't want to give up on owning gold despite the administration's threats. As the government couldn't reconcile the high amount of remaining gold coins with their new illegal status, the figure was simply expunged from the books and the gold is thought to have been smuggled out of the country or kept in private collections.

Ledbetter notes that gold retains its secrecy even half a century after a floating currency was established in the U.S., and long after one could argue for the economic and security reasons of being vague about gold hoards.

The secrecy surrounding gold has also given rise to conspiracies involving a lack of physical gold, such as the notion that the Federal Reserve has little to no gold bullion. Yet despite the restrictions in producing accurate estimates, it's safe to assume that 1% to 3% of Americans own gold, although Ledbetter and others believe that the number could be as high as 10%.

These statistics would mean that anywhere between 2.5 million and 25 million of America's citizens own gold. Regardless of the size of individual gold hoards, these numbers underline the importance of gold investment in the country while a closer look could redefine what we know about Western appetite for the metal.