Here's Why China Hasn't Bought 191 Tons of IMF Gold

After India bought 200 tons of gold from the IMF last November it seemed obvious to most prognosticators that China would be next up to bat. That hasn’t turned out to be the case. Yesterday, a new perspective emerged to take a stab at answering this yellow metal riddle.

From Commodity Online:

“David Lew, a keen gold market follower and bullion analyst, says there are several reasons why China is not buying gold from IMF, though there have been rumors that the Chinese central bank was planning to buy the entire 191.3 tonnes of gold from IMF.

“First and foremost is the fact that gold market in the world will turn into an immediate playground of speculation and excessive volatility if China is to buy gold from IMF. ‘Even rumors that China was buying IMF gold two months back turned the bullion market highly volatile,’ points out Lew.

“China has a relatively small position as far as gold reserves are concerned. The Chinese central bank–the People’s Bank of China–holds only 1,054 tons of gold, amounting to just 1.2% of the country’s gross domestic product. The large chunk of China’s reserves–around 70%–are held in US dollars.

“Secondly, Lew says the fact that China is not jumping in to buy IMF gold does not mean that the country is not interested in amassing gold reserves. ‘It looks China is buying gold these days from gold mines, rather than gold bullion. Clearly, China wants to balance its gold reserve position very carefully and meticulously,’ he pointed out.

“Lew feels that another reason for China not buying the IMF gold is that in doing so, the Chinese currency Yuan would appreciate. ‘China does not want its currency to appreciate by buying gold from IMF,’ Lew added.”

Lew highlights above that China has to be careful about putting its enormous reserves into any particular asset… except for Treasuries, of course. Almost every month, China continues to invest heavily in dollar-denominated assets in order to maintain the yuan’s dollar peg.

Also, China is the world’s leading producer of gold… ahead of even South Africa. So if China’s central bank chooses to buy gold it has no need to venture so far afield as to go knocking on the doors of the IMF’s DC headquarters. It can potentially take delivery without so much as leaving its own doorstep.

You can read even more of the details in Commodity Online’s coverage of why China is not buying IMF gold.


Rocky Vega,
The Daily Reckoning

The Daily Reckoning