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China probably has more than twice as much gold as the official figure of 2,010.5 tonnes. This is what gold market analyst Jan Nieuwenhuijs writes in a new analysis Gainesville Coins. Based on various sources, he concludes that the central bank probably already had a gold reserve of 4,309 tonnes at the end of 2022, a large part of which has therefore remained outside the official figures. This would already give China the second largest gold reserve in the world. How has China accumulated that gold over the past few decades?
According to Nieuwenhuijs, the Chinese central bank made a lot of gold purchases, especially in the 1990s, when the Chinese economy was growing rapidly and several European central banks were using part of their gold reserves Sold. The official explanation for this was that central banks did not make money from gold and that it was more interesting to hold government bonds that yielded an interest rate. The value of gold stocks also fell due to a falling gold price. But that wasn't the real reason. Like Nieuwenhuijs in a Previous analysis Although European countries had a relatively large amount of gold compared to the rest of the world and wanted to spread it more evenly across the rest of the world.
In 1992, for example, the Dutch Central Bank (DNB) sold a large quantity of approximately 400 tonnes of gold. At the time, several gold traders suspected that this gold had been sold to the central bank of China via the Bank for International Settlements (BIS). This was later more or less confirmed by DNB, because in its Annual Report 1992 the central bank wrote that 'the demand for gold in the Far East was very high'. And China was actually the only country that was supposed to buy so much gold at once.
In 1993, Chinese authorities confirmed that the central bank was buying gold to bring the gold supply more in line with GDP, the size of the Chinese economy. Both China and the Netherlands wanted to bring their gold reserves more in line with their reserves, which explains how these countries found each other for this gold transaction, according to Nieuwenhuijs. In the period from the early 1990s to the beginning of this century, other European countries also sold a total of 3,000 tonnes under the Central Bank Gold Agreement (CGBA), also with the aim of bringing gold reserves more in line with other countries.
The fact that the Gold price During this period, Nieuwenhuijs' theory that the Chinese central bank also bought gold from other European countries during this period, through so-called 'Over the counter' transactions with the BIS. Because these purchases were not made public, they had little effect on the price of gold. And so China was able to buy a lot of precious metal, without driving up the price of gold and thus disrupting the gold market. During this period, China has accumulated far more gold than the official figure of 395 tonnes that the IMF had on its books unchanged from 1982 to 2010.
Official gold stock Chinese central bank (Source: Gainesvillecoins)
Since 2010, the Chinese central bank has periodically provided updates on the size of its gold reserves, but initially this happened only very sporadically and by leaps and bounds at the same time. And according to Nieuwenhuijs, these figures also underestimate China's actual gold purchases. That's because of the way those numbers are collected. After all, not all central banks fully report all gold purchases to the IMF.
For example, since 2010 there has been a big difference between the amount of gold that central banks have added to their stocks, according to the IMF, and the figures from research firm Metals Focus, which provides data to the World Gold Council. Metals Focus also includes estimates in its figures that it has obtained from sources in the market, such as the aforementioned 'Over the counter' Transactions. For example, these can be gold purchases made by central banks directly from the BIS, through international gold banks or gold smelters.
Nieuwenhuijs calculated that over the period from 2010 to the end of 2022, there was a cumulative difference of 1,945 tonnes between the gold purchases as reported by the IMF and as calculated by Metals Focus based on its extensive network of sources in the global gold market. According to anonymous sources Nieuwenhuijs spoke to, this difference can largely be attributed to China and to a lesser extent to Saudi Arabia. These countries are said to be very active when it comes to large-scale 'Over the counter' transactions in the global gold market. For example, via smelters in Switzerland or traders in South Africa, the country where for decades and until the beginning of this century by far the most gold was mined.
Large difference between reported gold purchases by central banks by the IMF and Metals Focus (Source: Gainesvillecoins)
Not only has the Chinese central bank bought a lot of gold in recent decades, private ownership of gold in China has also increased sharply. While the possession of investment gold and jewellery was still strictly forbidden under the communist rule of Mao Zedong, Buy gold now stimulated. Since 2004, private individuals have been allowed to own investment gold again and since 2007 the precious metal has been traded freely via the Shanghai Gold Exchange. Sun Zhaoxue said in 2012, as president of the China Gold Association, that the gold among the population can also be an addition to the official gold supply. At the time, the Chinese population had an average of 5 grams of gold per person, while in 2022, according to Nieuwenhuijs' estimates, it was already about 17 grams. This brings China closer to the global average of about 20 grams per person.
In total, there are already more than 28,000 tonnes of gold in China, of which an estimated 23,745 tonnes are privately owned. Nieuwenhuijs bases his findings on a estimate of Precious Metals Insights on private gold holdings in 1994, supplemented by domestic mining production and imports of non-monetary gold from then on. Adjusted for the Chinese central bank's gold purchases up to 2007 (the year in which the Shanghai Gold Exchange became dominant), Nieuwenhuijs comes to a total of 23,745 tonnes. The graph below shows the sources from which China has collected that gold.
Estimation of total public and private gold reserves in China (Source: Gainesvillecoins)
Based on import data, figures on domestic gold mining production and existing gold reserves in China, the gold market analyst arrives at an estimate of 4,309 tonnes for China's gold reserves. According to him, a figure that is more in line with the growth of the Chinese economy and the years of surpluses in the Chinese trade balance. Also, since the early 1990s, the Chinese have followed the same strategy as European countries, namely to bring gold stocks more in line with the size of the economy. This makes it easier to restart the monetary system worldwide with gold as a foundation.
With a national gold reserve of 4,309 tonnes, China would still have relatively few gold reserves compared to, for example, European countries and the United States. Based on this, according to Nieuwenhuijs, we can conclude that China will continue to buy a lot of gold in the coming years. Especially now that international political relations are deteriorating and Western countries are becoming increasingly hostile to both Russia and China. Last year, Russia's foreign exchange reserves were already blocked, a risk that China also wants to be prepared for by owning more gold. Both on a public and private level. China will remain an important player in the global gold market in the coming years.
Chinese gold stock according to Jan Nieuwenhuijs' estimate (Source: Gainesvillecoins)
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