In a Market Alert briefing note, New York-based precious metals analysis specialists CPM have pointed out some significant aspects of the announcement of the increased 14.6 million ounce (454 tonne) holding in Chinese gold reserves overlooked in most reports. Chinese gold reserves are now stated as being some 33.89 million ounces - or just over 1,000 tonnes, making it the world's sixth largest holder of gold after the US, Germany, the IMF, France and Italy - excluding, though, the 1,100+ tonnes held in the SPDR Gold Trust ETF.
Firstly, it is pointed out that the purchases over the past six years had been made by the Chinese State Administration of Foreign Exchange (SAFE) rather than by the Peoples Bank of China (PBOC), which is why the amount of gold had not appeared in China's official reserve figures. Now though, the holding has been transferred to the PBOC and hence the announcement.
CPM reckons this transfer is particularly important in that Chinese government leaders were interested in buying gold over the past several years, but that there was a great deal of internal debate as to whether such gold should be added to monetary reserves held by the Central Bank, or as investment stocks to be held by China Investment Corporation or other non-monetary Chinese government entities. As CPM points out, the real news is thus that that discussion has obviously now been resolved, and the gold has been added to the monetary reserves held by the Central Bank.
CPM analysts believe that the confirmation of the Chinese move to place the gold in its official reserves indicates the extent to which gold is being rehabilitated as a monetary reserve asset, not only by the Chinese monetary authorities but by Central Bankers around the world and suggests that monetary authorities are looking at gold as a monetary asset with greater interest than at any time since the 1960s..
Commenting on the relatively moderate impact the Chinese news has had on the gold market, CPM stresses that this is not surprising given that the total amount represents a relatively cautious buying programme spaced over six years, and that the gold was all bought from Chinese domestic refiners and thus will have had little direct impact on the international gold market.
But, looking ahead CPM says that its relatively recent discussions with 'numerous' Central banks suggest that more have been becoming interested in possibly adding gold to their monetary reserves.
While this may not be the proverbial opening of the floodgates, it does suggest that the PBOC, and other Central Banks may become net purchasers of gold in the years ahead, rather than net sellers as has been the case of late.