China’s Real Gold-Reserves At 4,000 Tonnes?

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May 3, 2013 3:16pm NYSE:GLD NYSE:SLV

india-gold-etfSince the Crash of ’08 exposed the global financial system as simply one, big Ponzi-scheme ticking-down to implosion; one of the most public and emphatic economic policies of China’s government has been the rapid/relentless accumulation

of more gold reserves to “back” its own monetary system.

This economic priority has become an even greater imperative as China steadily replaces the U.S. dollar with the renminbi as the world’s new “reserve currency.” Stage I of that process has been $trillions in bilateral trade agreements and currency-swaps. Stage II was the establishment of a “reniminbi trading bloc” among seven of ten of Asia’s most-prosperous economies, where the renminbi is now the reserve currency for these nations.

What is unclear is whether “Stage III” involves any overt action by China to spread the renminbi’s official, reserve currency status; or whether it simply involves passively waiting for the West to complete its self-destruction of the dollar-based system. What is clear is that a central part of China’s mission to have the renminbi assume the global mantle of “reserve currency” is to have massive gold reserves backing that currency.

China should add to its gold reserves to “ensure national economic and financial safety, promote yuan globalization [i.e. the renminbi as reserve currency] and as a hedge against foreign-reserve risks [i.e. a dollar meltdown],” according to Gao Wei, an official from the Chinese Department of International Economic Affairs of Ministry of Foreign Affairs.

Wei wrote the above comments in the China Securities Journal today, according to a Bloomberg report…

…and later in the same article:

In 2009, a State Council advisor in China stated that a group of officials and economists from Beijing and Shanghai established a “task force” to discuss measures to add to the nation’s gold holdings. “We suggested that China’s gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years,” the advisor noted.

This is where the question of how much gold China has (and how much gold China wants) becomes interesting. “Officially” China’s gold reserves stand at 1,054, and (also noted in the above source) this number has not been “updated” since 2008, when “it disclosed [emphasis mine] that its reserves had increased” from 600 tonnes.

Here both the mainstream media and even many commentators within the precious metals sector have done a terrible job in explaining the Rules which relate to the reporting of gold reserves. It must be understood that legally/technically there are two entirely separate ways in which nations can add to their gold reserves.

Nations can purchase gold internationally/on the open market, or they can acquire gold from domestic sources. If a nation accumulates gold in the former manner, it is required to report/disclose every ounce of reserves added (or sold) in essentially a real-time manner. However, if/when a nation accumulates gold from domestic sources; it has no obligation to report any gold acquired in that manner – ever.

This explains the writer of the above article making careful use of the word “updated” when he/she referred to the increase in China’s gold reserves which it reported in 2008. This was a voluntary disclosure – in other words it reflected gold reserves which China had added from domestic sources, and which it had chosen to disclose.

At this point, those readers not already aware of this fact need to know that China is the world’s #1 gold-producer, and by a large margin. This is no accident. Rather, it marks what can only be termed a “fanatic” drive to increase China’s gold production as much as possible, as fast as possible.

In 2002, China was the world’s fourth-largest gold-producer; producing a (relatively) paltry 175 metric tonnes per year. By 2006, China had amazingly more than doubled that output to 360 tonnes/year – at which point gold production flattened out, until a sudden/surprising surge in reported production by over 12% in 2012, taking annual mine production to just over 400 tonnes per year.

This has occurred as gold-production has been eroding in most of the the world’s other, leading gold-producing nations; most-notably South Africa – the former (long-time) #1 gold-producing nation. This decline has occurred primarily through declining grades, rather than declining tonnages being mined; and by 2011 anecdotal reports were already coming in out of China of a similar trend in its own gold-production. One suspects that last year’s sudden surge will not/cannot be repeated – and that “Peak Gold” has now arrived in China as well.

Of equally important note; none of this mined gold ever leaves China. Indeed, it is doubtful if any reaches their own domestic market. To service the private demand of its own citizens; China imports vast quantities of gold – now rivaling the near-legendary appetite for gold of India (and Indians).

By 2011, China’s gold imports had already soared to more than 800 tons per year (excluding the Hong Kong region). However, while India produces practically no gold of its own, China is the world’s #1 producer. Clearly China’s mined-gold is the government’s gold.

This brings us to some number-crunching. In 2001, China reported an increase in its national gold reserves from 394 tonnes to 500 tonnes. Then in 2003, it announced the increase to 600 tonnes. By my calculations; from the beginning of 2002 China has produced approximately 3,600 metric tonnes of gold. However it has only reported a total increase in its “official” gold reserves of roughly 650 tonnes.

Even if we assume that some of that remaining 3,000 tonnes of gold-production leaked into its own domestic market (despite the best efforts of China’s government); there is a vast amount of mined gold in China which has not been accounted, and we must strongly suspect that most/all of that gold is securely stored in government vaults.

In other words, instead of having only 1,054 tonnes of gold reserves it’s quite possible that China could have as much as four times that amount: 4,000 tonnes. This would make the previously announced goals of China’s national “task force” still attainable.

Note that this 4,000-tonne figure could be a reality even assuming China had not accumulated any gold internationally. In other words, it could have actually bought gold directly and “broke the rules” in not reporting it, or simply had one or more of its government-directed proxies accumulating (and holding) gold on its behalf. Thus it is possible that even that 4,000-tonne estimate is conservative.

This makes recent remarks attributed to no less than the Vice governor of the People’s Bank of China (its central bank) “inconsistent”, to say the least.

Vice governor of the People’s Bank of China (PBOC) Yi Gang said Wednesday that the country’s gold reserves now stand at 1,054 tonnes, adding that a massive increase is unlikely in the near future.

What’s of interest here is China’s choice of mouthpiece for this suspiciously contradictory statement. They chose a central banker; individuals with a long history of pathological lying when it comes to gold.

Does any rational individual actually believe that China’s real gold reserves are only 1,054 tonnes? Of course not. We can thus attach an equal amount of credibility to the last half of Gang’s statement that “a massive increase is unlikely.”

It seems that China has discovered the “bash and buy.”

This article is brought to you courtesy of Jeff Nielson From Bullion Bulls Canada.

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