China stops buying gold?

The latest figures out of China suggest that the country ceased buying gold for its reserves in May. An announcement from the country’s central bank indicated its total reserve figure was an unchanged 58.14 million ounces (1,808 tonnes) at the end of last month.  Whether this represents an end to buying for its central bank holdings, or a temporary hiatus in its reports is unknown, but it appeared to have had an immediate effect on the global gold price, although not that significant a one so far, which fell around $7 in late Asian and early European trading today on the announcement. Since then though, other factors have taken gold and silver up a fair amount so the markets are obviously not letting the China buying, or lack of it, have too much impact, but if future months also see a hiatus in Chinese buying that could change.

In March and April China had reduced its gold purchases to around 9 tonnes in each month, so the amount is relatively small in relation to total gold demand, but as a possible indicator of an ongoing halt in China and thus a corresponding fall in the likely total of central bank buying this year, it may be taken as an important factor. Some commentators have suggested that the rise in the gold price so far this year has been at least a partial cause for the apparent fall in the purchases which have been announced monthly since July last year.

Prior to that China had only been disclosing its gold reserve increases on a five or six yearly basis leading to speculation that it was hiding its true reserve increases from the world, and that even now its reserves might well be considerably higher than the amounts reported to the IMF through holding an important chunk of its gold in non-reported government accounts.  Many observers suggest that the country’s total reserve figure may really be two or three times the officially declared amount.  Others put an even higher figure suggesting the country’s total may be nearing or exceeding the 8,133.5 tonnes of the reported official holdings of the USA - the world’s largest holder of gold.

China has been seen as building its gold reserves in part as diversification of its holdings away from the U.S. dollar, but also because it is believed that the country’s government is convinced that gold will play an ever bigger role in any realignment of the perceived economic status of nations in the years ahead.

We have also suggested that the Chinese central bank may see the huge holdings of gold by the state-owned and controlled commercial banks as being technically part of its gold reserve which would put the total under its control at perhaps 4,500 tonnes or more - See: China’s Govt controlled gold reserves already 4,500 tonnes plus .  This would put the total well on the way to that of the USA, and ahead of Germany - which currently has the world’s second largest gold reserve at 3,381 tonnes according to the IMF.

This is an edited and updated version of one I published a day earlier on the website

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