The gold world has lately
been abuzz with news and
speculation about the true volumes
of gold supply, private-sector demand, imports, and central-bank reserve accumulation.
In recent weeks, every gold analyst and pundit seems
to be jumping
on the bandwagon.
But this is nothing new for
our clients and readers of
For several years now, we have
suggested that China’s actual annual gold production,
consumption, and imports have been running considerably higher than that suggested
by official and semi-official statistics coming out of the Asian giant - and that
China’s central bank has been
accumulating many tons of gold
each year but for now chooses
not to report these purchases in the country’s official reserve statistics.
Indeed, I’ve been talking about surreptitious gold accumulation by the People’s Bank of China (the PBOC) ever since my
speech to the China Gold & Precious Metals Summit in 2008
— and I’ve been reiterating this theme in speeches and reports ever since.
China’s total gold supply from
domestic mine production and other sources is, without a doubt, much higher
than reported or discussed by analysts and
observers of the Chinese gold scene. Actual gold mine production
- and supplies from other sources
- could easily be close to
400 tons and possibly much more. Here’s why:
China Gold Association (CGA) numbers reflect production by their members only — but omit gold mined by non-members. These include many small, often rudimentary, unofficial mining operations some of which are illegal existing in the “underground economy,”
no pun intended.
CGA data also excludes
production from mines owned and operated by the military,
which is significant according to my sources.
And not to be overlooked is by-product output from the country’s copper, silver, and other metal-mining activities. Again, this is significant though hard to know just how significant.
- Also missing from the CGA reports are the huge quantities of gold contained in copper and other precious-metals bearing concentrates imported and processed by Chinese smelters and refiners.
- In addition to these unreported sources of supply, analysts and commentators seem to forget about secondary supply — that is from recycling of jewelry, investment bars, and industrial scrap. Just to get an “order-of-magnitude”
possibility, in recent
years global secondary
supply from scrap recycling has contributed more than one-third of total world supply. If scrap contributed only five or ten percent of China’s total gold supply it would still be quite important.
analysts estimate China’s total gold imports last year were around 490 tons — but there is little mention of
“illegal” imports — that is gold smuggled into China. We know smuggling is quite significant in some
countries — Vietnam and India, for example. We can only imagine how many tons of gold in the form of tael bars, wafers, coins, investment-grade jewelry, etc. is carried into China each year by travelers and professional
Central Bank Gold
Now, what about net
purchases and total official reserves held by the
People’s Bank of
and refiners are required to sell each
and every ounce of gold
output to the state gold-buying authorities. But, it seems that
some of this (more or
less the volume of unreported
production, as discussed above) is retained by
the PBOC and other government entities acting on behalf of the central
It is not at all unreasonable to conclude that the Chinese government may be squirreling
away perhaps 50 to 100 tons a year into accounts
that will eventually be included in the country’s reported official reserve figures - and one might
speculate that these figures could turn out to be considerably higher.
In my most recent speaking tour on behalf of clients across
China late last year and published on my website on December 15th (see World Economic Trends and the Future Price of Gold ), I said:
In recent years, China’s central bank, the People’s
Bank of China, has also been a significant buyer. Two and a half years ago - in April 2009 - the PBOC revealed it had
bought some 454 tons of gold
over the preceding six years, an average of about 75 tons
Since then there has
been no hard evidence of additional buying . . . but my guess is
that your central bank continues to buy regularly from domestic mine production and scrap refinery
output - perhaps as much as
50 to 100 tons per year. For its part, the
PBOC not long ago said it will “seek diversification in the management of reserve assets,”
possibly implying their intention to accumulate gold without actually saying so.