Guest Post: "Analyzing PBOC Official Gold Reserves Increment", by Koos Jansen of Bullion Star

Sun, Jul 19, 2015 - 5:36pm

You'd be hard-pressed to find anyone who knows more about the intricacies of the Chinese gold market than our pal, Koos Jansen. The updated reserve figures released by China back on Friday have stirred all sorts of speculation on the honesty and validity of the Chinese numbers. We've been waiting for Koos' interpretation and he released it on Sunday.

As we discussed back on Friday, there are two primary options here:

  1. China really only has 1,658 metric tonnes of gold in their reserves. This means that they only added about 100 mts per year for the past six years. They admitted as much on Friday in another desperate attempt to shore up confidence in their failing, centrally-planned economy and crashing stock market. They clearly have no desire to form a new global monetary system and are simply trying to survive in the present one, their economy and markets hopelessly entangled with the economies and markets of the west.
  2. You can certainly question the timing of this announcement AND it's nearly impossible to believe that China has only accumulated 600 additional metric tonnes of gold over the past six years. The import/export numbers and SGE delivery volumes underlie the deliberate deception of all this. In the end, China is masking how much gold they really have until the day comes when they formally announce what they plan to do next.

I lean toward option #2 and so does our friend, Andrew Maguire, whose list of contacts in China and East Asia is nearly as lengthy as "War and Peace". Appearing on KWN back on Friday, Andy said this:

“Why would the Chinese show their hand? This announcement that they are only holding 1,658 tonnes of gold is ludicrous. Read the book The Art Of War. They have accumulated thousands of tonnes of gold since 2009.”

And here's one of Koos' concluding paragraphs. I think you can see that Koos' beliefs pretty well fall in line with Andy and I:

"With the US having the power to obstruct renminbi inclusion into the SDR, the Chinese have to play it safe. They are required to be transparent about their true gold reserves, but may not want to upset the US by disclosing an official gold reserve figure at 3,500 tonnes. The 1,658 tonnes figure, which is too little to rock the global financial order, though a sign that China assesses gold to be “an important element of international reserve diversification” may thus be an appropriate figure. It’s not in China’s interest to rush into a new international monetary system as they continue to diversify away from the US Dollar."

Of course, NO ONE can say for certain what is happening here and everything you read on this site and others is simply speculation. Some more informed than others but specualtion nonetheless. Form your own opinion and act accordingly.


Analyzing PBOC Official Gold Reserves Increment

by, Koos Jansen

As always, please make sure you’ve read The Mechanics Of The Chinese Domestic Gold Market before continuing.

Finally last Friday the People’s Bank Of China (PBOC) updated its official gold reserves, from 1,054 tonnes, a figure reported since 2009, to 1,658 tonnes. Most gold analysts expected a number substantially higher than what was just disclosed. In this post we’ll analyze the 1,658 tonnes figure.

Before diving into the analysis, I like to share that I think it’s possible the PBOC hasn’t been completely honest by stating their gold reserves have grown by only 604 tonnes since 2009. I think in reality they have a little more than 1,658 tonnes, but let’s discuss that later on. In my analysis, I always try to start with official data and work my way from there, instead of start with speculative data and work backwards. It’s very easy in the gold space to rebut all official data, mainly because there is so much speculation. Therefor, I would like to start with the figure just disclosed, then I’ll try to answer, why 1,658 tonnes?

PBOC Gold Reserves Increment Was Covertly Imported

With regard to the update in gold reserves, the PBOC has stated on its website (in Chinese):

Based on our assessment of the asset value of gold and analysis of price movements, on the condition of not impacting or influencing the market, through various domestic and international channels, we gradually accumulated this part of gold reserves. The major channels of accumulation include: purifying domestic gold scraps and gold of various grades [杂金 in Chinese usually means non-standard gold including scraps so I have to paraphrase it], direct purchase of production, transaction in domestic and foreign markets, etc.

The official narrative is that the PBOC has bought 604 tonnes of gold in the domestic and international market. From my perspective, however, I think the PBOC has mainly been buying gold in the international market, as that’s where superfluous US dollars can be exchanged for gold. In the Chinese domestic gold market, physical gold is settled in renminbi. Gold the PBOC potentially has obtained in the mainland would be from state owned mines that not sell their gold through the Shanghai Gold Exchange, but have the gold directly transported to central bank vaults.

Not so long ago I wrote a lengthy post on PBOC gold reserves, it was titled PBOC Gold Purchases: Separating Facts from Speculation. The article contained a few concepts I still believe in:

  • The PBOC does not buy gold through the Shanghai Gold Exchange (SGE).
  • PBOC purchases/shipments are not disclosed in global customs reports.
  • As a consequence, everything we can see going into China (exports from other countries to China which are required to be sold through the SGE) and domestic mine supply (which is mainly sold through the SGE) are being added to private gold reserves and does not end up at PBOC vaults.
  • According to the China Gold Association (and global trade data), mainland net gold imports from 2010 until 2014 accounted for 3,967 tonnes and domestic mining output over this period totaled 1,979 tonnes; a combined 5,964 tonnes.

    To summarize we know that:

    (1) Laws and tax incentives direct Chinese gold import and gold mine supply to be sold through the Shanghai Gold Exchange.

    (2) Chinese private gold demand is all supplied through the SGE

    (3) Physical gold at the SGE can only be settled in renminbi

    4) The PBOC is likely to buy gold abroad with US dollars (not renminbi) to diversify their lopsided FX reserves and

    (5) In 2014 an SGE official confirmed that the PBOC did not buy gold through the Shanghai gold bourse.

    With this knowledge, it’s easy to understand the PBOC did not buy the 5,964 tonnes of gold that was supplied to China 2010-2014 through import and mining. The 5,964 tonnes was consumed by private gold buyers at the Shanghai Gold Exchange. To repeat myself, PBOC gold purchases cannot be traced from global trade data or SGE withdrawals, as these occur in the realm of the private Chinese gold market.

    One more reason why the gold exports to China we can see – for example in Hong Kong customs reports – are not addressed by the PBOC is that it can be observed that gold bullion is being declared as either non-monetary or monetary gold when studying customs data from any country. If the PBOC can choose how to declare their bullion, they’ll choose monetary. These are typically the options available when making a gold customs reporting:

    • Gold, for non-monetary purposes (HS code 71081100)
    • Gold, unwrought, for non-monetary purposes (HS code 71081200)
    • Gold, in semi-manufactured forms, for non-monetary purposes (HS code 71081300)
    • Monetary gold (HS code 71082000)

    The essential difference between these four categories is that “monetary gold” is always blank; this category is never disclosed publicly! As we know, the PBOC prefers to buy gold in secret, so their gold transport surely is hidden in the eclipsed category “monetary gold”. It’s thus pointless to try to measure PBOC gold reserves from available customs data on gold, as this data doesn’t show gold monetary shipments. From trade data we can only see what’s entering China for private gold demand sold through the SGE.

    From this perspective all official gold data presented above makes sense; all these thousands of tonnes of gold we could see entering China fell into the hands of private hoarders (and the PBOC has bought only 604 tonnes).

    I wouldn’t say the adjustment in PBOC gold reserves we’ve just witnessed is incredibly small; I would say the majority of the gold being shipped to China is destined for the citizenry!

    My supposition can be further strengthened if we re-read translations from Chinese gold industry officials I’ve published over the years. From Sun Zhaoxue, President of the China Gold Association in 2012:

    We should advocate to ‘store gold among the people’ and guide a healthy positive development in this segment. In recent years, the domestic gold industry’s rapid growth provided good conditions for various uses of gold, as well as create space for this business to grow faster. China … has to catch the opportunity, while increasing its supply capacity, to push the ‘store gold among people’ strategy, actively extend the business value chain, increase gold investment types, encourage and promote individuals’ gold investment and consumption. Foremost, maximize the utilization of … gold retailers, increase sales channels, optimize sales network, strengthen branding and achieve to ‘store gold among the people’ and thus ‘store wealth among the people’. This is the objective under our gold strategy.

    From an internal memo (only published in Chinese) from the PBOC on how to develop the gold market, 2012:

    The tradition of gold investment and consumption is with our people/citizens. As the private sector grows at speed and living standard upgrades, private demands for gold jewelry, coins and investment gold are also growing quickly. A gold market with a rich diversity of products will help develop new investment channels, satisfy the varied demand, help investors make appropriate asset allocations, raise investment returns and protect our wealth assets.

    There have been many clues the PBOC was buying gold as well, next to Chinese private demand, but for now we’re confirmed the lion share of Chinese demand over the years has been from the private sector.

    Let’s make a new chart:

    I’ve accumulated all domestic gold mining output and known gold imports isolated from “Official reserves” since 2009. The “Official reserves” increments in 2001 and 2003 are subtracted from “Cumulative domestic mining”, the “Official reserves” increments in 2009 and 2015 are not subtracted from “Cumulative domestic mining” or “Cumulative total import”, as my theory is that this was covertly imported. A detailed description of how I compiled this chart can be found in my previous post on this subject.

    If I’m right in my analysis that the PBOC has mainly been buying gold abroad since 2009, there are currently 13,781 tonnes of gold in China, of which 1,658 tonnes are official gold reserves and 12,123 tonnes are private reserves. Needless to say, everything the PBOC potentially holds in addition to 1,658 tonnes official reserves must added to these estimates. (I do not rule out the PBOC is able to buy gold in the domestic market.)

    PBOC Gold Reserve Increment Is A Strategic Move

    The PBOC’s decision to disclose their official gold reserves at 1,658 tonnes cannot be viewed in isolation from global monetary affairs. Since the financial crisis in 2008, Europe and Asia have been very clear in their preference to gradually decrease the emphasis of the US dollar as reserve currency in the international monetary system. China’s strategy is to play multiple hands at the same time of which one is the SDR.

    For the development of their economy, China aims to internationalize the renminbi. The composition of the SDR will be reviewed later this year. A requirement for a currency to be included in the SDR is that it’s freely usable. China will thus be required to disclose its reserves at least once yearly by groups of currencies. If we read the official statement on the gold reserves by the PBOC in Chinese, this is apparent from the part containing info about IMF’s Special Data Dissemination Standard (reserves disclosure).

    With the US having the power to obstruct renminbi inclusion into the SDR, the Chinese have to play it safe. They are required to be transparent about their true gold reserves, but may not want to upset the US by disclosing an official gold reserve figure at 3,500 tonnes. The 1,658 tonnes figure, which is too little to rock the global financial order, though a sign that China assesses gold to be “an important element of international reserve diversification” may thus be an appropriate figure. It’s not in China’s interest to rush into a new international monetary system as they continue to diversify away from the US Dollar.

    From the above chart, we can see China is not net selling US treasuries, but that they have stopped increasing their accumulated holdings since 2010. The Chinese aren’t ready for a major shift in the international monetary system yet. They are still working on further internationalization of the renminbi, the SDR inclusion, developing their financial markets and opening up their capital account. Only then will they unwind the US dollar. Until then, China will continue to adopt a slow step by step approach.

    Koos Jansen
    E-mail Koos Jansen on: koos[dot]jansen[at]bullionstar[dot]com

    About the Author

    turd [at] tfmetalsreport [dot] com ()


    Jul 19, 2015 - 5:41pm



    Jul 19, 2015 - 5:44pm


    Oh hell yeah !

    Jul 19, 2015 - 5:46pm

    Well I'll Take

    4th (nope) 3rd

    Jul 19, 2015 - 6:04pm

    hello charlie!

    I'll just jump right in behind you here charlie! I still say you me and joe should go out for lunch one of these days! Who calls themselves Koos anyway? Lol Well he writes a good article haha

    Jul 19, 2015 - 6:08pm

    Short EURUSD and long USDJPY?

    You may be in for a good week (a bit of a hedge if you look at USD position in those trades!). Shorting gold sooooon...maybe...then down the shop at the bottom to buy a coin or three with fiat...maybe...exciting times peoples...

    Mr. Fix
    Jul 19, 2015 - 6:28pm

    6 6 6

    Is a pattern emerging here?

    Jul 19, 2015 - 6:36pm


    Call me anytime, Joe is not into Silver like we are but I have another friend named Charlie in the town I live that is. Great guy and I believe he is on here also. Are you out there Charlie C??? Lol

    Anyway # is 207-338-4220 x115

    CC Horses
    Jul 19, 2015 - 7:25pm

    The United Precious Metals Association ("UPMA")

    Utah has an organization that allows anyone to use Gold as money, It may be a great way to get tax free capitals gains on your savings. The companies biggest problem is their visibility.

    Real Money You Can Count On

    The United Precious Metals Association ("UPMA") was established as a natural outgrowth of the passage of the Utah Legal Tender Act in early 2011. The UPMA promotes the wide circulation and use of precious metal legal tender. To this end it establishes standards for the production, vaulting and exchange of precious metal legal tender and bullion. These standards are designed to inspire public confidence as well as provide models for future legislation.

    As part of its public outreach programs, the UPMA has sponsored annual Monetary Summits at which the general public is welcome. Such events have drawn attendees from across the country and around the world.

    UPMA members are eligible to participate in the association's Liquid Gold program which enables participants to accumulate and spend gold dollars in amounts as little as one gold cent per transaction. More and more UPMA members are "going gold" in their routine, daily purchases, making true choice in currency a viable reality for the public at large. To get started, join the UPMA today.

    UPMA members are eager to give their business to those who accept real, sound money for their products and services. UPMA's consumer members know that sound money merchants are committed to making choice in currency an economic reality for everyone's mutual benefit. The UPMA offers sound money merchants:

    • Low transactions fees;
    • Attractive customer incentives;
    • Access to an expanding customer base;
    • High security, low cost vaulting and insurance;
    • Point-of-sale/On-line gold dollar payment solutions.

    So if you feel ready to become part of the solution to the economic challenges facing America by helping create a monetary base and payment infrastructure geared towards choice in currency, preserving purchasing power, promoting prosperity, and preparing for any potential monetary crisis, click on the category in the left-hand column that best describes you and join the UPMA today.

    Jul 19, 2015 - 7:57pm

    Something important and overlooked.

    Yes, Chinese have been pressured to show their gold for some time....and we know the rest of that story now. They decided to be nice to the IMF and their American "friends" (Gee, never thought I had a sense of humor), to show that they are not threatening, and keeping low profile.

    And here comes the important part. China wants the renminbi to be part of the IMF's SDR basket. And the Americans oppose it....Why do you think so?... If China wins in October (and I think they will), most major financial institutions (including the Central Banks) whose portfolios follow the SDR basket will have to add a lot of renminbis...that means to sell a lot of something else....what is overweight now...dollars! It is huge!...will the dollar be able to handle it???

    And now when you look back at the first part of my comment ..."being nice and not threatening(yet)" before October ...Friday's disappointing "gold report" makes more sense(regardless if it's true or false)....It is the "carrot and stick" approach by China, to get what they want....a wider distribution of yuan.

    R man J
    Jul 19, 2015 - 8:11pm

    Store Gold Among the People Strategy

    That way the Chinese government can recall it when necessary, they don't declare it, and the West can't steal it. If Libya, Venezuela, Ukraine, etc., had adopted this strategy, their gold would not be in the in the process of being leased by Western Banks.

    Jul 19, 2015 - 9:17pm

    Storing gold among the people

    Also, when all the world fiat currencies go to shit (all at the same time?), the Chinese people will be ready/able to seamless switch to a gold standard.

    Jul 19, 2015 - 9:25pm


    I guess it is still no transparency bullshit and we are still screwed

    Jul 19, 2015 - 9:31pm

    What just happened??

    gold traded down to 1080

    now back to 1107

    maybe this will be the capitulation

    Jul 19, 2015 - 9:32pm

    We are only screwed for a few more months...

    In 6-9 months this will all be over. Gold is simply collapsing because the machines are killing it - machines see Euro down = Dollar Up = Commodities measured in $$ down. That's really it.

    The price is going to get slaughtered, first on Europe collapsing and then on a market crash in the fall but after that it will swing back and become the savior everyone is looking for again - that's when the bull market will resume.

    This is going down almost EXACTLY like the Summer of 2008 and if it's anything like then we will see a crash in the gold price with everything else and then a V bottom for the ages.

    Jul 19, 2015 - 9:34pm


    Gold just hit $1070 on the 1-min chart and then promptly surged back up to $1104. I really think the best thing to do is appreciate it for what it is. The sooner we get to $900-950 the sooner this flips back...

    J.P. Cubish
    Jul 19, 2015 - 9:37pm


    Lookin down this evening

    Jul 19, 2015 - 9:37pm

    We may see 950 tonight if this keeps up

    Back down to 1089, volume over 28000

    If the COT is right the specs are winning big

    Jul 19, 2015 - 9:41pm


    Down $40.90 on Kitco...Sunday night? I am not worried, seriously. This will be bought back up. And even if it isn't...I still am here for the lng haul. It started for me at $535... Sure ain't folding...but a wee bit disgusted... Yup.

    Jul 19, 2015 - 9:42pm

    China owns only 1658 tonnes???

    Frm Sydney morning herald

    Jul 19, 2015 - 9:43pm

    Paper Games

    This will be fun to see what the physical premiums will be. Growing I'm sure and the physical disappearing. Get it while you can. Either they are stupid or are trying to crash the system. I can't wait for Willie's next newsletter which might come out tonight or early next week. Blow back time.....I can't wait to call my coin shop tomorrow. Love it.

    The real fun stuff will be Bo's next "explanation".

    Jul 19, 2015 - 9:44pm


    Looks like Greece has a more honest government

    Jul 19, 2015 - 9:45pm

    11:03am: With China finally

    11:03am: With China finally coming clean that it's been the second-biggest buyer of gold over the past six years, analysts and traders say the purchases will continue.

    In the first update since 2009, the People's Bank of China said on Friday that it owns about 1658 tonnes, implying purchases of 100 tonnes a year.

    The stockpile may eventually reach more than 5000 tonnes, according to Robin Bhar, an analyst at Societe Generale.

    "China hasn't been very open about its strategy, so what matters now is whether the market believes they intend to continue buying," said UBS analyst Joni Teves. "They do appear to leave the door open to further purchases, which should limit the downside for gold."

    While other big bullion holders like Russia and Germany update their holdings every month, China hasn't reported a change until last week. The new data shows the country is using the metal to diversify foreign-exchange reserves as policy makers push for the yuan to be added to the International Monetary Fund's basket of currencies.

    China bought 604 tonnes of gold since 2009, second only to Russia, according to data from the central bank and IMF. The total holdings make China the world's fifth-biggest gold owner.

    The annual gold purchases equal about 2 per cent of global demand, and there's "significant scope" for more Chinese additions, the London-based World Gold Council said Friday. The nation has been buying gold even as prices slumped from a record in 2011 to a five-year low.

    "Their motivation is reserve diversification, and they'll probably keep buying," said ABN Maro strategist Georgette Boele. "We'll probably only hear when they're done."

    Despite the expectations of further purchases, the precious metal sank to a fresh five-year low this morning of $US1129.59 an ounce.

    Investors are shunning bullion on expectations that the Federal Reserve will raise interest rates this year, eroding demand for an asset offering returns only through price gains.

    Local gold stocks are feeling the heat, leading the biggest losers list on the ASX this morning, with Evolution Mining slumping 8.4 per cent, Northern Star Resources down 6.1 per cent, Newcrest falling 5.4 per cent and Regis Resources down 4.5 per cent.

    One gold miner to buck the gloom is Ramelius Resources, which has jumped as much as 8.7 per cent to 12 cents after is said it expects profit of $21.4 million for the year ended June 30 (up from a loss of $85.5 million last year).

    The stock has surged more than 130 per cent this year.

    Read more:

    Jul 19, 2015 - 9:47pm

    Only thing I can find

    Gold collapses over $50, triggers heavy stops

    Reminds me of end of November when it fell to $1140 on a Sunday night only to rally back to $1220 on the Monday

    Lets hope this is a repeat.

    Jul 19, 2015 - 9:49pm

    the last trip like this

    found a temporary bottom.

    not just bo has a problem forecasting , not many in the bull camp saw this coming.

    keep in mind demand for silver and gold is very strong, and its a paper game.

    These folks need to be taken out to the shed and taken care of--actually they should be rounded up, all of them and charged with Treason and go thru the process and get their just punishment. People like Hilary too. Get leaders who are real leaders that can be respected.

    Jul 19, 2015 - 9:51pm

    the tell would be

    who covered at this price, and who dropped the volume on globex.

    btw, was there any news? Dollar is up all of 6 cents, oil down a dime.

    Jul 19, 2015 - 9:52pm

    Un F-ing believable

    What an utter collapse. I am destroyed.

    Jul 19, 2015 - 9:53pm

    Please take it to .01

    Paper game boys....

    And how do you put the charts and banks on "ignore"?

    Utterly laughable......

    AIJ djr66
    Jul 19, 2015 - 9:54pm

    RE the only thing

    They are risking losing control. Once the chart price is rejected it's all over. Think about it. Thousands of people who sell the metal have the choice to sell at what ever price they want. They can choose to reject the chart price. This is exactly what Cliff High's ALTA language is referencing, a bifurcation of chart and physical price. Suppose the price goes lower on the charts But the premiums start to rise. What next? Game over. Exciting time. They are desperate. They are literaly trying to force reject 5000 years of history and replace it with fiat. Good luck.

    Jul 19, 2015 - 9:56pm

    Look on the bright side

    If the price of silver keeps falling, we can spend 90% junk silver for its face value!

    ASE have a $1 face value, right? Just $13.63 more to fall, and we can spend them to.

    1 oz AGE = $50 face, right?

    Jul 19, 2015 - 9:57pm

    "The real fun stuff will be Bo's next "explanation"

    This is also what i'm looking forward to most... :)

    The ironic part is had he turned his charts upside down he would have been the most accurate forecaster in history!


    Donate Shop

    Get Your Subscriber Benefits

    Exclusive discount for silver purchases, and a private iTunes feed for TF Metals Report podcasts!

    Key Economic Events Week of 5/20

    5/20 7:00 pm ET CGP speech
    5/21 10:00 ET Existing Home Sales
    5/22 2:00 ET FOMC minutes
    5/23 9:45 ET Markit PMIs
    5/24 8:30 ET Durable Goods

    Key Economic Events Week of 5/13

    TWELVE Goon speeches through the week
    5/14 8:30 ET Import Price Index
    5/15 8:30 ET Retail Sales and Empire State Manu. Idx.
    5/15 9:15 ET Cap. Ute. and Ind. Prod.
    5/15 10:00 ET Business Inventories
    5/16 10:00 ET Housing Starts and Philly Fed
    5/17 10:00 ET Consumer Sentiment

    Key Economic Events Week of 5/6

    5/9 8:30 ET US Trade Deficit
    5/9 8:30 ET Producer Price Index (PPI)
    5/9 10:00 ET Wholesale Inventories
    5/10 8:30 ET Consumer Price Index (CPI)

    Recent Comments

    by argentus maximus, 1 hour 24 min ago
    by argentus maximus, 6 hours 43 min ago
    by Craigo, 9 hours 28 min ago
    by scoremore, 10 hours 51 min ago