China buys gold again: 32 tonnes in November

China added some gold to its reserves again in November, according to new figures released by the Chinese central bank this week. With a purchase of 32 tonnes, the country's official gold reserves rose to 1,980 tonnes, good for sixth place in the Rankings countries with the largest gold reserves. It was the first purchase since September 2019. What does this mean for China and for the gold market?

China buys more gold

The World Gold Council, which published the news brought out, writes in an explanatory note that this purchase fits within a long-term trend. China's central bank has been adding gold to its reserves since the beginning of this century, but does not always release this information immediately. In the spring of 2009, for example, the reported gold stock increased by more than 75% in one fell swoop, only to increase again by more than half in mid-2015. These purchases probably took place over the years, but they only came to light later. The graph below shows that China has quadrupled its gold reserves over the past twenty years.

Development of China's gold reserves

How much gold does China have?

This level of secrecy makes it difficult for the gold market to estimate how much gold China actually owns. Officially, the gold reserves rose to 1,980 tons as a result of this new purchase, but there are theories that the country has many more strategic gold reserves. According to some analysts, even more than the United States, which officially has the largest gold reserve in the world with 8,133 tons.

The arguments for this claim are twofold. On the one hand, China has for years been the largest Gold Mine Production in the world, with more than 330 tonnes in 2021 and even more than 400 tonnes in previous years. On the other hand, the country is structurally an importer of gold, which means that the total amount of gold within China is increasing sharply every year. In addition to the large mine production, the country also imports gold from Australia and via Switzerland and Hong Kong. It's possible that Chinese consumers could already have all that Buy gold, but it is also conceivable that some of this gold will disappear into strategic reserves that the Chinese authorities do not make public.

Countries with the largest gold mine production

At the beginning of 2020, gold market analyst Jan Nieuwenhuijs made a assessment of the total amount of gold present in China, based on the official gold supply and an estimate of the amount of precious metal already present in the form of jewelry, supplemented by the annual gold mine production and net imports. According to his estimate, there are already more than 20,000 tons of gold in China, although it remains a matter of conjecture how much of it is in public and private hands.

In July 2014, Song Xin, president of the China Gold Association, said in an article submitted to Sina Finance that China should aim for a gold reserve of 8,500 tons. He judged that the country had relatively few gold reserves in relation to its total reserves and in relation to Western countries such as the United States, Germany, France and Italy. While Western countries hold an average of between 40 and 70 percent of their reserves in gold, that percentage for China at the time was only 3.4 percent at 1,054 tons. On balance, this percentage has not risen since then, as the gold stock has risen at the same rate as the foreign exchange reserves.

Which countries have the largest gold reserves?

What does this mean for the gold market?

It was already known that China is an important player in the gold market. Not only does the country have the largest gold mining production in the world, it is also the largest importer and buyer of the precious metal. In Chinese culture, the precious metal is generally known as a means of savings and much less as an investment. The fact that the Chinese central bank is buying gold again is part of the longer trend and is therefore not a new development. Little can be said about the size of the gold purchases. The purchase of 32 tonnes of gold is not exceptional for a central bank and will therefore not have a significant effect on the Gold price.

Much more interesting is the question of which central bank in The third quarter bought so much gold. In total, central banks bought 399 tonnes of gold during this period, but only a quarter of that could be traced. Which central bank bought the remaining 300 tonnes remains to be seen. There is plenty of speculation as to whether that gold did not accidentally end up in China or Russia. These are the two most obvious candidates, as both countries are at odds with the United States and have relatively less gold reserves compared to the Western world. We will therefore continue to follow these developments closely.

Also Read: China: 'Gold is for preserving the value of our reserves'

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On behalf of Holland Gold, Paul Buitink and Joris Beemsterboer interview various economists and experts in the field of macroeconomics. The aim of the podcast is to provide the viewer with a better picture and guidance in an increasingly rapidly changing macroeconomic and monetary landscape. Click here  to subscribe.