Chronicle - Nov 19, 2023
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While China's gold reserves remain modest, there is a consistent and increasing trend in their accumulation. Notably, there has been a recent acceleration in the pace of this accumulation.
China's gold reserve is relatively modest, standing at 2,191 metric tons, or approximately 3.9% of its foreign exchange reserves, as per the World Gold Council's September 2023 data. In contrast, the United States holds a substantial 8,133 metric tons, constituting 68% of its foreign exchange reserves.
In the last two decades, China has steadily increased its gold reserves from 395 tonnes in the early 2000s to a five-fold rise. Recently, there has been a notable acceleration, with the People’s Bank of China adding 243 tonnes in the past 11 months through monthly purchases.
The context behind this surge in gold purchases is interesting.
First, in recent years, individuals in China have had the convenience of directly purchasing gold from banks using their savings accounts.
According to these articles, here and here, commercial banks in China have physical gold available for their customers. People may convert their savings accounts into gold directly at the banks instead of going to gold traders. And the process can be as simple as a few clicks away.
Moreover, according to those articles, it seems that the government is encouraging people to purchase gold for investment purposes. Gold advertisements on TV and leaflets promoting gold are common.
There are some caveats, though. The availability varies among banks; some banks have ready stocks, while others may need some time to deliver the gold. The price also varies, with some prices as high as 35% above the spot price.
But even with these caveats, the availability of physical gold in the banks creates an impressions that the yuan are ‘exchangeable’ for gold.
It’s worth to note that the commercial banks in China don’t act for themselves. They act in accordance to the PBOC.
Second, the PBOC doesn’t allowed gold export from China. Gold imports, both for general trade and manufacturing are allowed. The export of final products of manufacturing process, which may contains gold elements, are allowed. But the export of gold itself are prohibited.
More interestingly, the PBOC doesn’t allowed gold export from China. Gold imports, both for general trade or processing trade are allowed. The export of final products from that processing, which may contains gold elements, are allowed. But the export of gold itself are prohibited.
Third, China is increasingly aggressive in acquiring gold mines around the world. Chinese gold miners acquire gold mines outside China almost every year. For example, last year, Zijin Mining Group acquired the Rosebel gold mine in Suriname for $360 million. It is expected to produce at least 8.6 metric tons of gold per year.
China’s insatiable appetite for gold shows no signs of waning. In fact, there appears to be a concerted effort by both government and private entities to accumulate gold at an increasingly rapid pace.
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