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How much gold in China?

On May 15, the Russian news source Pravda passed along an unconfirmed story that appeared in Duowei News that the Chinese government had accumulated 30,000 tons (965 million ounces) of gold reserves.

The question of how much gold China owns now could be answered soon.

The question of how much gold China owns now could be answered soon.

China last updated their published gold reserves figure in April 2009, when they stated they were holding 1,054 tons.

There are several elements of this news that are peculiar.  A total of 30,000 tons of gold would be close to 20 percent of all physical gold extant worldwide.

Neither the World Gold Council (citing GFMS data) nor CPM Group report the possibility of the Chinese acquiring anywhere near to this quantity of gold reserves since 2009.

Further, if the Chinese government had accumulated a sizeable amount of physical gold, it had to come from somewhere, from sources which neither of these two precious metals reporting services detected.

Reserves of 30,000 tons would roughly equal the total amount of gold reserves held by all of the other world central banks (including the Federal Reserve and U.S. Treasury, which reports 261 million troy ounces) plus the International Monetary Fund, the Bank for International Settlements, and other official agencies.

So, on the surface, there is room to doubt that the Chinese government has anywhere near this much in gold reserves.

Having said that, though, the Russian and Chinese governments are currently working closely.  It is highly unlikely that Pravda would have released this news report without the acquiescence of the Chinese. If so, the story would tend to understate the size of China’s gold reserves.

The Chinese do have a track record of low balling the quantity of gold reserves it holds. It started a quiet, aggressive program of adding gold reserves in 2003.  I was able to acquire sufficient confirmation that this was going on to report this news in 2005. It was not until April 2009 that China admitted it has been buying gold reserves since 2003 and claimed they were then holding the 1,054 tons of reserves. At the time of the 2009 announcement I stated that it was almost certain that the Chinese already held reserves greater than what was reported.

Why would the Chinese government seek to acquire substantial gold reserves?  The ultimate answer is to increase that nation’s global political power. By holding such large gold reserves, China could implicitly or explicitly back its yuan currency with this precious metal, potentially making the Chinese yuan the world’s dominant currency.

In striving to achieve this status, a side result would be that the global appeal of the U.S. dollar would fall sharply. Trillions of U.S. dollars in foreign hands would no longer be needed to settle international transactions. So, expect a growing flood of U.S. Treasury debt and U.S. currency to be sent back to the U.S. Treasury for redemption.

It is likely that within the next month or so China will issue a new statement on the size of its gold reserves. It needs to do this soon to bolster support for its effort to have the Chinese yuan included as part of the IMF’s Special Drawing Rights when the components are revised in the fall. Any claim that China holds at least 5,000 tons, let alone 30,000 tons, of gold reserves would be part of the strategy to hurt the value of the U.S dollar.

Patrick A. Heller was the American Numismatic Association 2012 Harry Forman Numismatic Dealer of the Year Award winner. He is the owner emeritus and communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Coin Week (http://www.coinweek.com). He also writes a bi-monthly column on collectibles for “The Greater Lansing Business Monthly” (http://www.lansingbusinessmonthly.com/articles/department-columns).His Numismatic Literary Guild award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com).  

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One Response to How much gold in China?

  1. modrare says:

    China has been buying gold on the international market for many years. It is the largest gold producer in the world and Russia comes in at number three. While I think it makes sense for these two countries to work towards creating a gold-backed World Reserve Currency to compete with the US$, and believe they are doing so, I don’t think that event is near fruition.
    I look for China to under-report their gold holdings, however. They hold government-owned gold in three separate facilities, so might report on holdings at only one of these sites.
    I believe China has significantly increased their gold holdings since last reported. 30,000 tons is extremely unlikely. But 10,000 tons might be believable!

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