Gold analysts continue to wonder about the apparent disparity between China’s officially stated gold holdings and the country’s massive gold imports and gold production.
China is the largest producer and biggest importer of gold in the world. Even so, many analysts state that the country is also likely the holder of up to 500 tons of gold that appears to have simply vanished from the global market. This figure is based upon the difference between China’s 2013 domestic gold production of 428 tons plus its estimated gold imports of at least 1,158 tons, and its annual demand of about 1,066 tons.
These estimates are in dispute as the Chinese government is notoriously silent on any gold import figures.
In her article on Forbes.com, Shu-Ching Jean Chen discussed three possible “Chinese vaults” that might contain this gold. Any of the three scenarios, or a combination thereof, could be the answer behind the curious gap in China’s gold figures.
The first, and possibly most likely, holder of that gold could be China’s central bank.
“Most analysts believe it is clandestine buying by China’s central bank, the People’s Bank of China (PBOC), that is behind China’s record demand, even though it has insisted its gold reserves have remained steady since April 2009, at 1,054 tons,” wrote Chen. “This accounts for just one percent of its official foreign reserves, but already makes China the world’s sixth largest holder of official gold reserves.”
“The gold-seeking analysts point to China’s history of murky financial dealings. When PBOC last hiked its gold reserves early in 2009 it did so overnight, in a big way, abruptly announcing that its reserves had nearly doubled to 1,054 tons, up from 600 tons,” she wrote. “A deputy bank governor came out to explain that the increase was due to domestic recycling and purchases on domestic gold exchanges,” which seemed to raise some eyebrows within the metals community.
Additionally, 12 commercial banks have been licensed to import gold into China since 2012. Vice Chairman of the Gold Association of Guangdong Zhu Zhigang says that unknown quantities of gold have accumulated at these banks.
A third option is that domestic gold could be “on loan” to jewelry factories centered around Shenzhen.
“Most buyers and sellers end up trading physical gold through the official Shanghai Gold Exchange, since companies that sell their gold outside the exchange are required to pay a 17 percent value-added tax,” explained Chen. “But instead of selling through the exchange at a low price, mining companies have come up with the idea of ‘loaning’ their gold to jewelry factories in the hope of taking it back to sell on the market when prices rise.