Solving the Secret Behind the Chinese Gold Market
China wants to make the rules in the international monetary system, which is why it has been acquiring vast amounts of gold through both private and official channels.
Because of the obscure nature of the Chinese gold market and the reluctance of Chinese officials to show their hand, nobody has been able to accurately calculate how much gold the Chinese have amassed.
Koos Jansen has studied the Chinese gold market and recently came up with an estimate of total Chinese gold holdings: 19,500 tonnes as at January 31, 2017.
According to Jansen’s estimates, total private holdings, including those of individuals and firms, are 15,500 tonnes. The official reserves of the People’s Bank of China (PBOC) are around 4,000 tonnes.
This would make China the second-biggest holder of gold after India. Private sector holdings for the US are unknown, but the Treasury still holds 8,134 tons in official reserves.
China got its gold from domestic mining; six hundred mines produced 490 tons of gold in 2015. In 2000, it had only 4,000 tons in total.
China imported about 1,300 tons of gold in 2016, mostly through Hong Kong, but also from Switzerland and the UK.
When the gold gets to China, it is sold through the Shanghai Gold Exchange, which also handles scrap supply and domestic mining. None of this supply is going to the central bank, but rather to consumers and companies.
As for the central bank, its purchases don’t show up in official import statistics. The central bank also uses commercial banks, which buy in Switzerland or South Africa, and ship the gold to China.
China needs the gold to internationalize the renminbi. If there are enough reserves behind it, they can make it a credible currency.
That’s also why China doesn’t allow even one ounce of gold or silver to leave its shores once they enter. As Jansen put it: “The West has been selling gold into a black hole.”