If you have been following along you know that China abruptly stopped acquiring gold in October 2016, the same month the IMF allowed the renminbi / yuan to join the SDR basket of currencies. China had met it’s gold obligation required by the IMF and why continue sharing with he world a closely held strategic component? No one else that’s not acquiring gold on the global market is reporting their gold. No audit or tours of the gold vaults, simply roll the numbers forward from the previous month, previous year, previous decade.
China has now rejoined the gold market and has added a significant amount of physical gold to their national reserves. This is the “official” gold that is reported, but as it is well known China has other avenues they use to acquire gold, for the state, that is not counted as “official” gold. It could converted to official gold with a simple rebalancing of a ledger sheet. But I digress.
The latest news of China’s gold acquisitions shows they added almost 12 tons of physical gold, which is keeping with their activity in 2015 in the run-up to join the SDR basket of currencies.
Chart / ZeroHedge
Beijing has joined the global gold rush, increasing its gold reserves for two months in a row to 59.94 million ounces. China has long been silent on its holdings of gold as many countries are turning away from the greenback.
China’s national gold reserves rose by 0.38 million ounces (nearly 12 tons) at the end of January from 59.56 million ounces at the end of December 2018, according to data released by the People’s Bank of China on Monday. The value the country’s holdings of the precious metal reached US$79.319 billion, increasing by more than $3 billion compared to the end of last year.
Before December, the Chinese central bank had not reported an increase in gold reserves for more than two years, and the official figures remained unchanged from October 2016 to November 2018, standing at 59.24 million ounces. Source
Related: Louis Cammarosano: Russia to Supply China with 80 – 100 TONS of Gold Annually
Of course, China, like Russia, is doing it’s best to put on a good show and continue using the Federal Reserve Note, but it seems China and Russia both are moving into another phase of de-dollarization. Russia has been making a lot of noise for the past several months about their monetary reserves and the fact that they are going to move away from using the Federal Reserve Note. Now it appears that China, while not grand-standing, is doing the exact same thing. Please keep in mind Russia and China’s banking and financial systems are co-mingled.
China is also trying “to diversify its reserves” away from the greenback, according to Jeffrey Halley, senior market analyst at currency broker OANDA. The analyst told the South China Morning Post that the state of affairs in global politics, including a trade war with the US, are driving China’s interest to buy gold as a “safe haven hedge.”
In January, China dropped to sixth place among the world’s largest holders of the yellow metal behind Russia. With its 67.6 million ounces of gold, Russia now stands in fifth place behind the US, Germany, France, and Italy.
Crucially, the size of the gold addition are far less important than the signaling effect – why did China decide now was the right time to publicly admit its gold reserves are rising?
After months of seeming stability in the yuan relative to gold, Q4 2018/Q1 2019 saw China seemingly allow gold to appreciate relative to the yuan. Source
Don’t surprise if China drops out of the gold market, again, to work on other aspects of their monetary reserves and prepare for the full blown de-dollarization moves that will be required.
Related: Russia and China Lay Economic Foundation Based on Golden Rule
Now that China and Russia both have similar stacks of gold what will this mean in the short term? What about the long term? Nothing, you say. Well, don’t count it.
One last thing – I always come back to this really strange gold swap agreement between Russia and China. Russia agreed, in 2016, to swap up to 100 tons of physical gold with China, but the actual details of the swap were not made public, just that it would be happening. Are these two nations working on some type of gold currency swap to get all the bugs worked out before unleashing the Kraken on the world?
