The China gold announcement is not that significant

Marshall Auerback here. Yesterday, Ed made a big to-do about China’s increase in gold reserves. I am going to take a different view here.

CLSA is saying that the increase is from purification and miscellaneous transactions since all the way back to 2003 so that it was not a recent open market purchases but accumulation of 6 years of this process. If this is the situation, then this news really is not as significant as people think.

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Marshall Auerback here.  Yesterday, Ed made a big to-do about China’s increase in gold reserves.  I am going to take a different view here.

CLSA is saying that the increase is from purification and miscellaneous transactions since all the way back to 2003 so that it was not a recent open market purchases but accumulation of 6 years of this process. If this is the situation, then this news really is not as significant as people think.

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I think this is probably true. If you look at the Chinese forex reserves, for years, they had the same number on gold for years (always around 500 tonnes despite massive increases in forex reserves). They don’t fully disclose. I can recall in the early part of this decade noting that platinum imports in China were going through the roof (the Johnson Matthey data on this was excellent) and it was largely for jewellery consumption! But gold imports never seemed to move and I was always told that this is because the Chinese preferred platinum which I thought was rubbish.

Every single economic model pointed toward increased consumption of gold, but that was never reflected in the statistics, and I always thought that this was being concealed for political reasons.

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The more interesting question is this:  why is China tipping its hand now – perhaps as an implied threat to the US?

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