China’s main goal is to internationalise yuan (CNY) and add it to the currency basket of the International Monetary Fund. To succeed China needed to update both of their currency and gold reserves. Last update in 2009 put Chinese reserves at 1054 tons.

Speculations about how much gold is held by the People’s Bank of China (PBC) seem to have no end.  The newest update was quite a shock. It was stated that reserves amount to 1658 t and not to 3500 t as it was commonly perceived. Allegedly reserves were growing only by 100 t per year during last six years. 

Publication was pushed by the IMF, but in my opinion the official numbers are understated by a huge margin. Recently in one of my interviews I highlighted that it is more than possible that number given by authorities will be smaller than the true reserves but even I was surprised with 1600 t levels.

Why Chinese did not publish their true level of reserves?

a) The IMF negotiations.

It has been several years since China and IMF are discussing adding the yuan to the currency basket. Special Drawing Rights (SDR) is a portfolio of dollar, euro, pound and yen. For years Americans having the right to veto blocked any negotiations and changes.

It may be that in exchange for somewhat cosmetic change of the Chinese gold reserves the US government agreed to smoothly include second Asian currency to SDR. Still the US dollar is the biggest loser here and consequently the US.

Around October the news may break that CNY after 5 long years of talks will be officially added to the currency basket.

b) Currency reserves

Substantial majority of Chinese currency reserves worth 3.7 trillion USD is held in short-term US government bonds. Informing the markets that government reserves equal 5000 t rather than 1050 t would raise question not only about the source of this plentiful stash of gold but also who doesn’t have it anymore. This second part is very important here. This uncertainty could push the price of this precious metal up and distort delicate balance in the foreign exchange markets. Chinese have big stake here equal to 98,4% of their currency reserves.

c) Importing at Black Friday’s prices… to be continued

Regarding gold reserves of the Peoples Republic, Roland Wand – chairman of Chinese World Gold Council branch – said that “gold amounts to 1,6% of Chinese reserves, while the ideal situation would 5%. If China announce today that 5% of currency reserves are in gold the result would be huge climb of global demand and the price of gold. This is not in the best interest of our citizens”.

Last but not least, government actively encourage its citizens to invest their savings in gold.

What are the goals of China?

From 20 years Chinese economy is the leader of fast growth. According to PPP China is the number one economy in the world. While in many aspects international arena still treats them as developing country.

Chinese policy will eye several goals in near future:

a) Internationalisation of yuan to change its stance from being transactional currency to reserve one. Thanks to that China will paint more trustworthy picture of itself on the global stage.

b) Preparing ground for solid currency (loosely bound to gold) with simultaneous transformation of economy – from centrally planned to free market.

c) Owning substantial currency reserves guarding against results of bursting speculative bubbles (stocks, real estate) in the local market.

d) Diversification of dollar reserves into various assets

e) Developing of alternative (not-western) market. New silk road and AAIB.

f) Dethronement of the US as the global hegemony.

Let’s now see how much gold PBC really has.

a) Production.

Source: Koos Janses,

From 2009 to 2014 gold yearly production increased from 315 t to 450 t. Most of the mines are owned by the state and there is a ban for gold exports.

Since the announcement of official reserves in 2009, approximately 2200 t of gold had been produced. Share of this amount went through Shanghai Gold Exchange (SGE) to individual consumers. What was left probably resides in PBC’s vaults. Ratio is not yet known.

b) Official imports

Gold is imported to China through SGE and then to the market. Last six years SGE noted the sell of 7000 t of bullion. It is safe to say that majority ended up in Chinese hands as it is traditional medium of amassing wealth. Substantial share was snatched by various funds wholly owned by the state.

c) Unofficial imports

All gold passing from country A to B is recorded. Exception from the rule is gold coins bought by central banks and government agencies. As long as the gold is in coin form there is no available information about its volumes and flows from one country to another. China is able to import big volumes of aurum through government agencies and have this imports hidden from official reports.

Similar situations were described by Jim Rickards in the second part of his book:

One of the high level G4S directors (global logistics company) shared that he himself transported gold to China through mountain massif. Transport was guarded by People’s Liberation Army supported by armored vehicles. Gold was in 400 oz “good delivery” ingots used by central banks”.

It is very hard to estimate volume of China’s government reserves. One thing is for sure that 1660 t is too small of a number. According to different calculations Chinese already accumulated from 4-8 thousand tons. Some estimates talk about reserves being over 10 thousand tons but personally I think it is exaggeration.

From Chinese officials and also from central bank’s side we may have heard rumors that government is able to import around 500-600 tons of gold while still having stable gold market. Recent Dutsche Bank report seem to confirm this data. In general it is very unlikely that reserves are below 4.5 thousand tons.



The big problem of central bank reports is their lack of accountability. The bank can say one thing but average investor has no chances to verify it.

The US claims sine ‘50s that they have 8500 tons of gold. There was no audit since then. Germany claims 3000 tons but majority is abroad. This makes it hard to distinguish whether they have the gold or its ‘paper promise of return’.

China is no different. Central bank still holds only 1660 tons even if another 3000 tons are held by funds controlled by the very bank itself. Formally everything is square.

China’s gold lets them play a very successful game with the US. Recently Uncle Sam had to accept the change to SDR basket. Next time it may be other area of Chinese interest which will be focused, time will show. On global scale this game is played not only for profit but rather for control. Control is the biggest prize here.


Trader 21