Firstly, the slump in assessed demand was largely for two reasons – sharply reduced gold ETF inflows and a fall in Central Bank gold reserve increases. But, it should be noted, that gold inflows into the ETFs did remain positive over the quarter and the Central Bank figures were skewed by China’s non reporting of any gold reserve changes since its currency was accepted as part of the IMF’s Special Drawing Rights (SDR) in October last year. In Q1 2016, China had announced additions of 35.2 tonnes to its official reserves – some 15% of the fall in assessed gold demand during the latest quarter. If one takes China out of the equation other Central Bank gold additions came to a positive 7.4 tonnes – and on its reserve reporting track record China’s zero reserve addition figure has to be considered suspect.
Coming back to Central Bank shortfalls, can we believe the China figures at all? One should recall that up until July 2015 China only reported any reserve increases at five of six year intervals maintaining the pretence that it was not adding to its reserves monthly, as it obviously was. But, in the immediate run up to the IMF decision to re-jig its SDR make-up to include the yuan, the Asian nation began announcing monthly reserve increases. Once the yuan officially became a part of the SDR, China has reported zero gold reserve increases. Can this just be coincidence?
China is known to favour building its gold reserve as an important facet of securing its place in the global trade picture and its whole gold reserve adding policy has always been shrouded in secrecy. Some China-watching analysts will argue that, in fact, its real gold reserve is far higher than the officially stated figure of 1,842.6 tonnes. After all it has been the world’s largest gold producer for some years now….