Has China Manipulated The Gold Market?

By: Arkadiusz Sieron | Wed, Jul 29, 2015
Print Email

The financial press and blogosphere are still exploring the topic of Chinese reserves. Recently, some voices have arisen that China supported the recent plunge of the gold price in order to boost its reserves. Are these opinions justified?

The disappointment increase in China's reserves led to a heated debate. On Friday, two articles were published (here and here), which suggest that China manipulated the gold market by under-reporting its official reserves to lower the gold price and increase its reserves.

Well, it is a very interesting twist in the gold perma-bull story. Perma-bulls have been saying for years that Western banksters are behind the manipulation of gold prices, while China is a positive protagonist, who has been buying every possible ton of gold it could buy to undermine the financial control of Western central bankers. Now, the story is that China has handled the gold price, but do not worry - this is good handling enabling China to by even more gold and finally force the West into collapse.

This story makes even less sense when we realize that Russia is constantly reporting increases in its gold reserves (it added 800,000 ounces in June to its official holdings). Why do gold-bugs believe in Russia's official holdings and do not accuse it of price manipulation? Is not Russia interested in the bankruptcy of the U.S. dollar as well as China? In one article linked above we can read: "China is not ready to unsettle the global currency market by announcing how truly large its gold holdings are, because that would call into question the value of U.S. dollars and could be seen as an attack on the dollar." But Russia apparently is not afraid to reveal its gold reserves. There are also other problems with that suggestion. It implies that China generally wants to dethrone the greenback, but at the moment it is afraid to do so (but when will be the right moment for that?). It also implies that currency wars are not only about artificial depreciation to boost exports, but also about appreciation (by backing the currency with gold). Please, at least choose one version.

There is, however, one intriguing puzzle. The increase in gold reserves that the PBOC reported doesn't seem to square with publically available reports on the amount of Chinese gold production and imports since 2009. According to data, China has produced over 2,000 tons of gold and imported over 3,300 tons through Hong Kong since 2009 (it has imported also from Shanghai, but the numbers are undisclosed). So where is the missing gold? Well, the mined and imported gold did not have to get to the official holdings of the central bank. China is a large country with a lot of entities interested in gold, so the yellow metal could simply get to citizens, banks, large companies and the Chinese Sovereign Wealth Fund. Although it is possible that a portion of Chinese gold could easily become a part of the official reserves if need be and that the PBOC is probably able to buy gold in the domestic market, the reality is that the official gold reserves held by the PBOC are only 1,658 tons right now. The allegedly missing gold is not surprising, given the obvious fact that in a country inhabited by 1.4 billion people there are entities interested in holding gold other than the central bank.

Thank you.

 


If you enjoyed the above analysis, we invite you to check out our other services. We focus on the fundamental analysis in our monthly Market Overview reports and we provide daily Gold & Silver Trading Alerts with clear buy and sell signals. If you're not ready to subscribe yet and are not on our mailing list yet, we urge you to join our gold newsletter today. It's free and if you don't like it, you can easily unsubscribe.

 


 

Arkadiusz Sieron

Author: Arkadiusz Sieron

Arkadiusz Sieron
Sunshine Profits' Gold News Monitor and Market Overview Editor
Gold News Monitor
Gold Trading Alerts
Gold Market Overview

Arkadiusz Sieron

Arkadiusz Sieron is a certified Investment Adviser. He is a long-time precious metals market enthusiast, currently a Ph.D. candidate, dissertation on the redistributive effects of monetary inflation (Cantillon effects). Arkadiusz is a free market advocate who believes in the power of peaceful and voluntary cooperation of people. He is an economist and board member at the Polish Mises Institute think tank. He is also a Laureate of the 6th International Vernon Smith Prize. Arkadiusz is the author of Sunshine Profits' monthly Market Overview report, in which he keeps subscribers up-to-date regarding key fundamental developments affecting the gold market and helps them prepare for the major changes.

Copyright © 2014-2017 Arkadiusz Sieron

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com