A highly respected analyst quotes research suggesting that China built up a huge stash of gold between 1979 and 2003, and has been adding to it recently – and all without declaring this to the IMF.
A note from very well respected analyst and China watcher, Simon Hunt*, has come up with the intriguing suggestion that China may actually have as much as 30,000 tonnes of gold hidden away in various accounts rather than the 1,054.6 tonnes it declares to the IMF. It is widely believed that China has indeed been accumulating additional gold for its reserves secretly over the last few years, but Hunt’s note also cites research by Alasdair Macleod of Gold Money published last year that China has accumulated some 25,000 tonnes of gold when the gold price was very low between 1983 and 2002. Hunt rates Macleod’s research very highly, referring to him as the world’s top gold analyst.
Hunt goes on to state that China is planning to link its currency to gold within the next three years, but first will have to make some swingeing internal financial reforms which will have a strong impact on global financial markets – and not a positive impact!
He also comments that his dealings with the Chinese suggest that the country does not wish the yuan to become THE or A global reserve currency, but just wishes to be able to trade directly in yuan rather than via a dollar route – a process which is already under way as it has set up bilateral trade deals in yuan with around 28 countries already and has established a trading hub in Zurich.
I’ve gone into this in a bit more detail in an article published on Mineweb.com – See: Could China actually have 30,000 tonnes of gold in reserves?.
This suggestion may seem a bit far fetched, but China has a penchant for ultra long term planning as a centrally planned economy, and certainly had the wherewithal, and perhaps the incentive, to achieve this given its huge trade surpluses and a desire to be less reliant on what it has seen as a vulnerable U.S. dollar in its foreign currency reserves.
As an added note though, well known gold analyst Martin Murenbeeld reckons these huge stock figures should perhaps just be classified as wild estimates. He says the question that needs to be asked is where the supply might have come from? “Did GFMS, CPM, etc all miss the supply side – assuming the 30,000 tonne demand stockpile is correct?” he says. “In short, the data tabulators didn’t just miss the demand side of the market, they also missed the supply side. How likely is that?”
*Simon Hunt has been in the commodity analysis business for many years. He was one of the two founders of hugely respected metals commodities consultancy Brook Hunt which nowadays has been absorbed into Wood Mackenzie and nowadays runs his own commodities advisory service in Simon Hunt Strategic Services – www.shss.com