China's gold reserves might be a mystery, but its
hidden gold exports grow clearer...
TIRED of charades, contract bridge, or
Buck-a-roo? asks Adrian Ash at BullionVault.
If you need a little offline entertainment after dinner
tonight, there's a hot new parlour game for bankers, bullion analysts,
financial journalists and internet bloggers...
Guess just how big are China's gold reserves really?
Now, this game isn't new of course.
In fact, the sport has been growing faster than China's
gold reserves for 5 years and more.
Conclusion? The gap between China's supply and demand MUST
be going to the central bank, right?
Or so everyone seems desperate to think. Even though, if
that were true, it would clearly say Beijing's gold hoarding means less than
nothing for world prices, now slipping again below $1180 today.
Still, this was the game played again at Bloomberg's
recent Precious Metals Forum at its plush offices in London. The prompt was Bloomberg's own thesis that China's politburo may be
planning to launch a Chinese Gold Standard if the US-controlled IMF doesn't
give the Yuan the respect it deserves at this
October's half-decade review of the monetary system.
So, retro-fitting a reason for China to need huge gold
reserves, and starting from the 2009 announcement of 1,054 tonnes, maybe
Beijing now holds 3,000 tonnes...matching Germany's national hoard (and the
consensus estimate amongst professional analysts).
Or maybe Beijing now holds 5,000 tonnes...only just behind
the United States' 8,000 tonnes.
Thankfully, and alongside this latest dose of
Kremlinology, Bloomberg's seminar in the City also brought lots of useful
analysis from useful analysts as well. Most notably, on China, ex-GFMS chief
Philip Klapwijk of Precious Metals Insight showed how between 1,200 to 1,500
tonnes of gold are now tied up in 'shadow banking' and used as collateral for
cheap loans.
Moreover, Klapwijk confirmed how Chinese dealers have been
exporting gold bullion – in defiance of the country's strict export ban – by
shipping it out as very plain jewellery and other 'crude' items, into Hong
Kong, where it simply gets re-melted and turned back into kilobars for the
bullion market.
So as Australia's Macquarie Bank noted earlier this year,
China's officially reported gold exports of 750 tonnes in 2014 certainly did
include gold bullion outflows. Only, they didn't take the form of investment
bars – not when they were shipped – to confuse the Chinese customs officers.
What did these hidden gold bullion exports look like? Our
guess would be lumpy gold chains via the 'jewelry' category...or 'articles'
more or less crafted such as lucky gold cats...or perhaps little gold bricks
commemorating the Great Wall of China.
Either way, today's Chinese bullion smugglers are unlikely
to choose the Eiffel Tour paperweights used by British dealers to get around
the UK's export ban after the end of WWII.
Just be careful no one mistakes it for a genuine souvenir!
Yes, that 1951 comedy film – The
Lavender Hill Mob – was in fact very close to the truth.
Because with London then (as now) the center of world
bullion flows, "This technique," explains miner-and-refiner backed
information site GoldAvenue, "was widely used in the late 1940s for unofficial gold exports. The
gold was officially allocated as for manufacture into 'artistic' objects
which, once exported, were remelted into gold bars for smuggling to
India."
James Bond's 1959 caper Goldfinger also "had real
insights into the black market in gold at the time," with the villain's
trick of smuggling recycled scrap gold as panels of his Rolls Royce car
"based on actual tricks of the trade."
Despite China's official ban on gold bullion exports then,
the metal has still found a way out, as well as in. Beijing's crack-down may
be harsher than the UK authorities managed seven decades ago. But the more
the world's gold market changes, the more it simply repeats trading patterns
seen long ago.