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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.
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Courtesy of http://lawrieongold.com/
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