Opinion: Why China probably has a lot more gold than it admits

China has lifted a veil over its gold holdings and confirmed its interest in providing more up-to-date reserves data by announcing a near 60% jump in its official bullion assets since 2009.

The declaration on Friday, in a Chinese language announcement on the People’s Bank of China (PBoC) website, appears a judicious attempt to show more statistical transparency as China modernizes its international currency arrangements.

The PBoC said its gold reserves were 1,658 tons against 1,054 tons in April 2009, which was the last time China declared its gold holdings. In 2009 the reserves total was raised from just under 600 tons, a figure Beijing had maintained unchanged since 2002.

Although China is making greater efforts to meet international standards on presenting its reserves and other sensitive data, it is unlikely that the announcement gives the full story of its gold reserves. These are believed to include both a foreign component — dollars converted into gold on foreign markets as part of general efforts to diversify reserve assets — as well as a domestic element in the form of metal acquired from the Chinese mining industry, now the world’s most important in terms of annual output.

Since purchases from domestic suppliers are settled in renminbi, they are logically not thought to be part of foreign reserves. The Chinese central bank’s overall gold holdings may thus in fact be much larger than the reported 1,658 tons, in line with estimates that, in some years, it has been purchasing several hundred tons of production from Chinese mines.

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Another objective is to avoid unduly disturbing the gold market at a delicate time for the dollar ahead of a probable U.S. interest-ate rise later this year. If China had met some analysts’ expectations of a bullion total of between 2,000 and 3,000 tons, that would have had a major impact on the bullion market, something Beijing may wish to avoid in the months leading to conclusion of the SDR review.

Full article: Opinion: Why China probably has a lot more gold than it admits (MarketWatch)