Chinese Gold and SDR’s

Posted | 22/04/2015 / Views | 2594
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Yesterday Bloomberg reported the following:

“China’s push to challenge U.S. dominance in global trade and finance may involve gold — a lot of gold.

‘While the metal is no longer used to back paper money, it remains a big chunk of central bank reserves in the U.S. and Europe. China became the world’s second-largest economy in 2010 and has stepped up efforts to make the yuan a viable competitor to the dollar. That’s led to speculation the government has stockpiled gold as part of a plan to diversify $3.7 trillion in foreign-exchange reserves.

‘China may be preparing to update its disclosed holdings because policy makers are pressing to add the yuan to the International Monetary Fund’s currency basket, known as the Special Drawing Right [SDR], which includes the dollar, euro, yen and British pound. The tally may come before the IMF’s meetings on the SDR next month or in October, Nomura Holdings Inc. said in an April 8 report.”

There can be no doubting the rapacious appetite for gold by China of late, 2013 and 2014 were all time records and we report on 2015 often.  But no one knows how much is going to their central bank who only last told the market of a relatively measly 1,054t back in 2009.  “Calculated” estimates of 5,000 to 10,000 tonne abound but no one really knows.  One thing you could feel reasonably comfortable asserting is it will be a lot and when revealed it will shake the market as it will quickly raise the question of ‘where did it come from?’.  Many postulate western vaults…

You will have seen markets rally yesterday on the news that China lowered its reserve requirement ratio to free up capital and stimulate growth.  We posted a must read article today on where all this loose stimulatory monetary engineering is potentially taking us.  China may well be ahead of the game….