Where is China’s Missing Gold?

February 11th, 2014 by


Mainstream media are starting to pick up on the story of how China’s gold import and gold consumption numbers literally don’t add up, with the consensus that the Chinese government is accumulating hundreds of tonnes of gold “off the books” for its foreign reserves.

The Telegraph today published the story “Gold Prices Rise Amid China’s Missing Bullion Mystery.” Noting that gold is up 6% for the year already, they call attention to the outflows from the Shanghai Gold Exchange yesterday hit 2.57 tonnes, the highest since May. The week after Lunar New Year is traditionally a period of low market activity, as Chinese have bought gold gifts the week before for family and friends.

The China Gold Association reported that gold consumption in China hit a record 1,176 tonnes in 2013, divided as follows:

Jewelry         717 tonnes
Gold Bars     376 tonnes
Industrial      49 tonnes
Coins/misc    35 tonnes
Total:     1177 tonnes

The author at the Telegraph notes, however, that there is no mention of domestic gold production, estimating 500 tonnes of freshly mined gold and scrap recycling for 2013. He mentions that one theory is that it was all sold on the black market, while a “conspiracy theory” is that the Peoples Bank of China is stacking it off the balance sheets under another name.

Industry news site Mineweb has a more detailed look at the question, in “The Chinese gold Consumption Conundrum.” Noting that recorded gold imports into China through Hong Kong account for most of the stated consumption (1150 t imported vs 1176 t consumed,) this does not only ignore domestic gold production, but also imports through other ports such as Shanghai. Using withdrawals from the SGE as a metric for total Chinese demand, 2013 shows over 2000 tonnes of gold entering the Middle Kingdom and exiting the Exchange’s books. (Like the COMEX, once gold is withdrawn from the SGE, it is not allowed back in. It has to be re-melted and re-assayed into new bars.)

Add domestic production to SGE withdrawals and you get approximately 2,400 tonnes of gold consumed by China. As the article states, this is around 1,250 tonnes of gold unaccounted for, just from 2013!

If China is adding to gold reserves at over 1,000 tonnes a year, it have the largest gold reserves in the world in as little as four more years. There is much written in Chinese academic and policy circles about the vital role gold has to play in China’s economic security. It is not so far-fetched to think that hundred of tonnes of bullion a year have been stored in some sort of sovereign wealth fund, so it doesn’t show up on PBOC books and scare the price of gold higher.

If this is true, when will China reveal the full extent of its holdings? Perhaps when the yuan becomes fully convertible to other currencies in the world market, and is included in the IMF’s “Special Drawing Rights” (SDR) basket of currencies, a goal that China has said it would meet before 2016.