Questioning of extent of China’s gold reserves proves questionable itself

Speculation about the volume of China's gold reserves has been going on for quite a long time. According to an article published by US-based Business Insider on Friday, China has understated its official gold data, which should stand at an overall figure of 2,400 tons rather than the officially claimed 1,658 tons. The report also suggested that commercial banks are holding another 2,060 tons, and that there are 6,490 tons in the hands of private buyers - for a grand total of 10,950 tons in China.

China's disclosure on July 17 of its gold reserve holdings was an encouraging gesture with regard to transparency, but the volume of 1,658 tons was widely interpreted as understated.

In my opinion, repeated questioning of China's gold reserve holdings by foreign countries is not because they are truly interested in the basic volume of China's gold reserve holdings. Their overestimation of China's gold reserve holdings possibly indicates a concern that the yuan may come to threaten the dominance of the US dollar as the world's reserve currency as the yuan becomes more internationalized.

The sources of data they use for working out China's official gold reserve holdings are dubious and their calculation methods are also questionable. Therefore, the figures they present for China's gold holdings are unreliable.

As for estimates of China's gold reserve holdings by some other brokers and analysts, the accuracy of their data is uncertain, given the varying sources and differing methods of calculation.

Despite these rumors and the continuing speculation, it would be advisable for China to increase its gold reserves, which currently account for only 1.6 percent of China's total foreign reserves, according to the latest data from the central bank. And if China does increase its gold holdings, the authorities perhaps should not openly publish the news, in order to avoid wild swings of gold prices in the market.

Some have said that increased private gold holdings by Chinese citizens are partly a result of encouragement from the central authorities. But in my experience, China has never encouraged its citizens to do this. The increase of private gold holdings is likely because Chinese traditionally like gold and regard gold jewelry as part of their life. Also with gold prices declining, it is natural and reasonable for people to purchase it.

Despite all the assumptions about China's private gold holdings, Chinese gold investors, especially middle-aged women, do not care about these assumptions and speculation although they do care about the price of gold. To understand China's gold culture and Chinese preference for gold can help those observers more precisely predict China's policy and the intentions of private Chinese gold holders. 

The author is chief economist with China National Gold Group Corporation.