first majestic silver

Does Any Nation Hold The Gold It Says It Does?

There is little or no transparency in the way central banks report national gold reserves to the IMF.

China has 1,054.1 tonnes of gold in its official reserves. Yeah right! The USA has 8,133.5 tonnes in its reserves – the world’s largest. But forgive me if I treat this figure, and those reported by some other central banks, with about as much scepticism as I treat the official Chinese figure. Much is made of the fact that China has not updated its official reserve figure since 2009 – but then the US has not updated its figure for nearly 40 years. Something similar applies to many other central banks which report identical gold volumes year in, year out.

It’s all a question of accounting and presentation of statistics. In truth the major central bank holders of gold only tell the IMF what they want the world to believe are their actual attributable gold holdings and the true amounts of accessible physical gold currently held on their own behalf are quite probably somewhat different in a number of cases.

There are two potential factors at play here. A central bank may wish to obscure its actual gold holdings for political reasons or for financial ones (currency support). China has been widely believed to have been buying gold in quantity and boosting its reserves in secret by holding this gold in a separate account which it thus considers it does not need to report to the IMF as it is thus not yet part of its official reserve.

Meanwhile, a number of Western central banks are believed to have leased out much of their gold to the bullion banks. These, in turn have offloaded the gold to clients or the general market (perhaps much of it ending up in China) or used it as collateral.

But this is perhaps at such volumes that there’s no way it can get paid back as bullion, as per the leasing terms, as the amount of available physical gold at the current gold price is totally insufficient to cover this. Indeed much of this gold may have been leased out when the gold price was far lower so it would be enormously more costly to replace now. This leased gold still appears in central banks’ accounts as remaining in place in their reserves but it may well no longer be there physically. Hence the red flags raised when it was announced that it would take the German Bundesbank seven years to repatriate what is, in effect, a pretty modest amount of gold bullion from the US. Whether the German gold was immediately available for repatriation or not, or if there are other reasons for the time to be taken, cannot easily be explained, hence the doubts raised. These may be spurious, but perception is everything in global financial markets!

Returning to China, Bloomberg has recently made quite an impact in other media in suggesting that its analysts reckon Chinese reserves are, in reality, around 2,500 tonnes higher than China says they are. This is not really news in that it is just updated research from calculations from over a year earlier. But it has had a strong impact this time due to speculation that China is indeed about to announce a new higher gold reserve figure. The suggestion is that the country may need to uproot its official reserve holding as a positive element in trying to get the yuan recognised as being part of the make-up of the IMF’s Special Drawing Right when this comes up for re-assessment this year. This is perceived as an interim measure in getting the yuan ever more acceptable as a fully tradable currency in major global business transactions – a role currently dominated by the US dollar.

China has already made big inroads in this respect with the negotiation of a number of bilateral trade deals bypassing the dollar. It may well say it does not wish to replace the dollar as THE global reserve currency, but it would certainly like to make inroads into the dollar’s current pre-eminence here.

Central banks as a rule won’t facilitate full independent audits of their gold holdings so in effect the IMF effectively has to believe what the banks tell it in publishing global gold reserve data. Perhaps most central banks, but probably not all, are completely honest in their reporting. But the suggestion is that if it wishes to do so China could well announce to the IMF it has increased its gold holdings in its reserves to around 3,500 tonnes as Bloomberg suggests, apparently putting it into second place amongst global gold holders – or perhaps it could even say it has 9,000 tonnes (whether it does or not) putting it into first place. There is no transparency here.

3,500 tonnes is perhaps a nice compromise figure. It is sufficiently high for it to make an impact and give the yuan even more global credibility on its route to becoming a global reserve currency, but perhaps not so high that it would disrupt the gold price over-much. Far higher gold prices may not be in its best interests assuming it remains in a gold accumulation phase.

However, if China was to say that it now has 9,000 tonnes in its reserves, replacing the US as the No. 1 gold holder, it would probably lead to a very substantial gold price rise. Now given there has been a considerable amount of what has to be state-sanctioned media publicity and advertising in China to persuade its citizens to buy gold, which has generated a vast number of new gold holders within the Chinese middle class, a big gold price boost could well be a way of helping stimulate the domestic economy which appears to have been slipping. Or is this a too Machiavellian idea even for the Chinese whose long-term planning capabilities enormously exceed those of the West? In terms of economic disruption in the West such a move could be catastrophic. The big short holders of gold (and of silver which would also rise enormously) would be bankrupted overnight throwing the financial system into potential chaos. A gold bull’s dream, but not one we would want to seriously contemplate!

This is all hypothetical of course, but does demonstrate that the perceived complete lack of transparency around central bank gold holdings means that the figures reported to the IMF, at least in some cases, could be totally open to political and strategic financial gerrymandering. The I.F has no real way of confirming the reality of the gold reserve figures reported to it. It relies totally on the honesty and integrity of those who control central bank policy and reporting. Although some, not many, central banks are supposedly independent of their host governments one suspects even the independents will bow to their administration’s wishes and governments are notorious for manipulating statistical data in their own interests. Go figure.


Courtesy of

Lawrence (Lawrie) Williams has been involved with both the technical and the financial end of the mining sector for over 40 years, formerly CEO of top mining industry business publisher, Mining Journal Limited, he was Mineweb's General Manager and Editorial Director up until October 2012 and is now Consultant Editor. He has worked as a mining engineer on gold, platinum, uranium and copper mining operations.

The world’s gold supply increases by 2,600 tons per year versus the U.S. steel production of 11,000 tons per hour.
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