All the gold in China: money and power goes east

There is more to China’s gold reserves than meets the eye
China has far more gold than official figures suggest – as much as America, in fact. He who owns the gold makes the rules, says Dominic Frisby.
Gold divides opinion – almost as much as Brexit. For some, gold is an antiquated asset, as irrelevant to modern global finance as the horse now is to transport. Central banks only own gold out of “tradition, long-term tradition”, as Ben Bernanke, former chairman of the US Federal Reserve, famously declared in Congress back in 2011. But, for others, gold is money. The oldest, purest and soundest money there is. And he who owns the gold makes the rules, as the old saying goes.

Gold makes up 77% of US foreign exchange reserves, rather a high allocation for a mere tradition. Official records show it owns some 8,133 tonnes, most of it held in Fort Knox, making it the world’s largest owner. And the US, pretty much, does make the rules. It has the world’s most powerful military and its largest economy.
But there is a mighty new kid on the block in the form of China. Its economy, some argue, is already as big as America’s if GDP is assessed in terms of purchasing power parity. Its army is bigger; maybe not yet as powerful, but that day cannot be so far away.
And then there’s China’s gold. I think it has considerably more than it says it does. We know that over the past decade China has been both importing extraordinary amounts as well as mining it. When you crunch some numbers, as I’m about to here, you realise that its gold holdings could be the most important subject in global finance – and yet the least talked about. Just how much gold does China actually have? And what are the implications?
The world’s top gold producer…
Let’s begin with some context. Total central bank gold reserves stand at around 34,500 tonnes, which is roughly 18% of the 190,000 tonnes of total above-ground supply. China’s officially stated number is 1,948 tonnes – 3% of its foreign exchange reserves. This amounts to the sixth-biggest national hoard in the world and is barely a quarter of US reserves.
Now let’s try to calculate what it really has. We’ll start with China’s production: what it has mined. South Africa had for over 100 years been the world’s largest gold producer, but in 2007 it was overtaken by China, which produced 276 tonnes that year.
China has remained the world’s largest producer ever since. Its production reached 464 tonnes in 2016. Last year’s output of 404 tonnes was still 30% higher than that of the world’s second-largest producer, Australia. Over the last decade, China has produced around 15% of all the gold mined in the world.

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