(Kitco News) - Once again, speculation is cropping up regarding the size of China’s gold reserves and whether or not the People’s Bank of China has been bolstering its holdings in secret.
According to data from the International Monetary Fund, China’s official gold reserves have not changed since 2009, standing at 1,054 tonnes.
However, Marc Chandler, head of global strategy at Brown Brothers Harriman, said in a report Thursday that the country could soon update its reserves. He noted China will be meeting with the International Monetary Fund (IMF) in May to make a case of including the yuan in the IMF’s Special Drawing Rights (SDR), a basket of currencies made of U.S. dollars, Japanese yen, pound sterling and euros.
“The cloak of secrecy may be lifted if China wants to bolster its case for being included in the SDR. We have previously made a similar point about the currency allocation of its currency reserves,” Chandler said.
However, Chandler added that because of the small size of the gold market, compared to foreign exchange markets, it is unlikely that China has significantly increased its gold reserves.
“The gold market is far too small to replace even a significant part of the paper money,” he said.
BBH is not the only firm speculating on China’s official holdings. Also on Thursday, French bank Natixis presented arguments for and against China buying more gold.
They noted that China could have doubled its gold holdings to 3,200 tonnes in 2013 by taking its entire domestic mine supply.
“As for local demand for gold, it could have been adequately satisfied by imports,” said Bernard Dahdah, precious metals specialist at the France-based bank.
Similar to BBH, the argument against China increasing its reserves is, as Dahdah agrees, that the gold market is too small to make a difference in a central bank’s total foreign reserves, and maybe not an efficient way to diversify its holdings.
They noted that if China did actually double its reserves to 3,200 tonnes, it would only increase its percentage as part of total holdings to 3.3% from 1.5%.
“While some would see this as a patient, long-term way to add gold reserves, others view it as an argument against attempting to accumulate significant volumes of gold, indeed some Chinese officials have voiced publicly their opposition to the idea of adding gold to FX reserves,” Dahdah said.
“While some would see this as a patient, long-term way to add gold reserves, others view it as an argument against attempting to accumulate significant volumes of gold, indeed some Chinese officials have voiced publicly their opposition to the idea of adding gold to FX reserves,” Dahdah said.
Dahdah added that it makes more sense for China to decrease its foreign currencies, thereby increasing gold’s role.
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