China Increases Gold Reserves 76% to Fifth-Largest (Update4)


By Eugene Tang and Bob Chen

April 24 (Bloomberg) -- China boosted its gold reserves by 76 percent since 2003 and has the world’s fifth-biggest holding by country, said Hu Xiaolian, head of the State Administration of Foreign Exchange.

The nation increased its reserves by 454 tons to 1,054 tons through domestic purchases and refining scrap metal, Hu said in an interview with the Xinhua News Agency today. The amount is more than Switzerland’s 1,040 tons, World Gold Council data show, and is worth $31 billion at current prices.

China has the world’s largest foreign exchange reserves at $1.95 trillion as of March 31, according to state administration data. The holdings have climbed about sixfold in the past six years as the country had record trade surpluses and inflows of foreign investment. Gold prices have almost tripled to more than $900 an ounce from $337.

“Chinese foreign-exchange reserves have absolutely exploded in the past few years,” said Jan Lambregts, head of Asia research at Rabobank International in Hong Kong. “We shouldn’t be surprised that they’re adding a lot of all asset classes. I don’t think they’re shifting away from U.S. dollars into gold.”

Gold climbed to a record $1,032.70 an ounce on March 17 last year and traded 0.9 percent higher today at $912.08 an ounce at 3:18 p.m. local time in Singapore.

Debt Holdings

Chinese Premier Wen Jiabao has expressed concern the dollar will weaken, eroding the value of China’s holdings of Treasuries, as the U.S. borrows unprecedented amounts to spend its way out of recession. China is the biggest overseas owner of U.S. government debt, holding notes totaling $744 billion at the end of February, according to U.S. data.

Jesse Wang, executive vice president of China Investment Corp., has said the nation’s $200 billion sovereign wealth fund may invest in “undervalued” commodities. Zhang Guobao, head of the National Energy Administration, said China should invest more in commodities instead of hoarding the dollar, Xinhua reported on March 7.

China, the world’s biggest gold producer, has increased its holdings before, Hu said in the interview carried on the administration Web Site. They rose from 394 tons to 500 tons in 2001 and to 600 tons in 2003, it said. China has told the International Monetary Fund of the recent changes and the new amount will be reflected in the central bank’s balance sheet and statistical reports, it said.

‘Support Prices’

“This shows a change in attitude in Asian central banks,” said Si Kannan, associate vice president at Mumbai-based Kotak Commodity Services Ltd. “While the IMF is selling gold, Asian central banks are diversifying into gold. That’s a good thing, in times of dollar uncertainty and the global volatility in the forex market,” he said by phone from Mumbai today.

China’s gradual increase in gold reserves and increasing jewelry demand from China and India “will support gold prices,” Kannan said.

The IMF said April 3 there had been no talks about selling more gold than the 403.3 tons proposed a year ago. Leaders from the Group of 20 said the day before that revenue from previously proposed gold sales would be used to help the world’s poorest countries. The IMF board approved a proposal in April 2008 to sell 403.3 tons of bullion as part of a plan to close the Washington-based lender’s annual deficit.

“My opinion has always been that China should increase its gold holdings,” Hou Huimin, vice chairman of the China Gold Association, said by phone from Beijing today. “China should strive to play a more proactive role in the global financial market by adding more gold.”

The U.S. has the world’s biggest gold holdings at 8,134 tons, followed by Germany with 3,413 tons, World Gold Council data show. France has 2,487 tons and Italy 2,452 tons, while the IMF has 3,217 tons, according to the council.

To contact the reporter on this story: Eugene Tang in Beijing on eugenetang@bloomberg.net
Last Updated: April 24, 2009 03:23 EDT

These Chinese must be really stupid. It is only a barbaric relic, after all! A shiny rock.

It is padding for if they felt they need to call in the U.S. debts. The dollar will tank which will hurt them because they have a large holding of U.S. dollars.

china government has a strategy of doing things that are in the best interest of china, i disagree with the helping poor country comment, they can care less...also - get ready for one bumpy ride once china decides to start selling off the us treasury

But, aren't they communists? If they are, they must really hate what they are doing. Vladimir Lenin once said that the communists will line up public urinals with gold, as this is the only useful purpose of it.

May-be they are simply trying to line up the urinals, and god knows, there would be a lot of urinals in China.

Gold is tangible... anywhere... anytime... regardless of the worth of local currency.

C'mon nogames...

Why do you think we have the most?

According to our central bank, gold isn't even good enough for American to hoard.
(Apparently, it is good enough for all central banks, since this is the only specie of transactions between central banks).

BTW, Soviet Union would have never won the WWII, if not for the help from America, called "LendLease" at that time.

Why?

Because, the program provided USSR with weaponry, ammunition, explosives, landing strips, trucks, medicaments, etc.

And the payment for that was? Yes. In specie. Only. Nothing but gold.

FDR was sob. But you have to credit the evil genius of a guy. To start the war, in order to become the largest holder of gold, while at the same time letting the former largest holder to hammer your worst enemy.

The problem with evil people, is that they are also evil to their own people. FDR had turned all Americans into slaves, that did not even have the right to own money, until early 1970-ies.

Where's the proof we have the most? When was the last time Fort Knox was audited?

I think he meant "we had".

Where has the US Gold gone and why the gold price is not rising yet.


The most common policy [of US central Bank, or FED] is to lease gold to a specialized group of insiders known as bullion banks. The central banks call this leasing, but it is operationally a form of gold sales.

The central bank leases gold at well under 1% per annum to bullion banks. Bullion banks then sell the gold into the private market, take the money, and invest it in government bonds or other investments that pay far more than 1% per year.

That gold is gone. To get the gold back, the central banks would have to demand payment in gold by the bullion banks. The bullion banks could not repay this gold without going into the gold market and purchasing it. This would drive up the price of gold. It would bankrupt the bullion banks.

So, central banks do not require the bullion banks to repay the gold which the bullion banks borrowed from the central banks. The central banks simply roll the loans over, year after year, and the bullion banks invest the money that they get from selling the gold. These central bank sales are not recorded as sales by the central banks. The public remains oblivious.

The central banks maintain the fiction that they still own the gold. They report their holdings of gold as not having changed. But, from an economic standpoint, the gold is gone, and there is no possibility of central banks will ever get it back from the bullion banks.

Another way that central banks and governments battle investors in gold is to announce, from time to time, that the central bank is contemplating the sale of gold. This scares some gold investors, who sell their goal. Of course, other investors who know the name of the game buy the gold. By threatening to sell gold, central banks are attempting to push down the price of gold.

The latest example of this came at the G20 meeting on April 2. An announcement was made that the International Monetary Fund will make available special drawing rights (SDRs), which will serve as money for central banks. To raise some of this money, the IMF will sell some of its gold. That was the official announcement.

The IMF has been threatening to sell gold for several years. To do this takes a majority vote of the member nations of the IMF. It is clear that the member nations are willing to allow the IMF to do this. Previously, this was not clear.

The figure quoted by the press regarding the amount of gold be sold is 400 tonnes. World production of gold each year is in the range of 2500 tonnes. It is unlikely that the IMF will sell all of this gold at the same time. It is likely that these sales will be stretched out over at least a two-year period. So, the sales are likely to increase the supply of available gold by perhaps 8% for two years. In a time when central banks are increasing the monetary base by 100% per annum or more, this increase in the supply of gold available for purchase is not substantial.

There is another issue to consider. It is likely that most of this gold will be purchased by other central banks. If this should turn out to be the case, then the actual supply of gold coming into the public domain will not change. Nevertheless, the announcement was made that these sales will take place. This put downward pressure on the price of gold.

Why would a central bank or the IMF say in advance that it planned to sell a large portion of its gold holdings? When a large holder of commodities is going to sell the commodity into the open market, he does not announce this in advance. His goal is to maximize the amount of money he gains by the sale of the asset. If he warns the world in advance how much he plans to sell and over which time period, this will depress the price if the sale constitutes a significant quantity. It is economically irrational for a seller of commodity to say in advance how much she plans to sell. I say "economically irrational" on the assumption that the goal is to make a profit. But if the goal is not to make a profit, but rather to inflict economic harm on people who hold a particular commodity as an investment, the announcement makes eminently good sense.

The fact that the IMF sale was announced by the IMF for years preceding the G20 meeting, and the fact that it was announced at the G20 meeting, indicate the degree of the hostility of the IMF and the central bankers to people who invest in gold. They were willing to take a loss in terms of the amount of money they could have obtained for the gold by quiet, unannounced sales. They are willing to take this loss because they believe that it is more important to create uncertainty in the gold market than it is to maximize the amount of fiat money gained by the sale of gold. So committed are these people to inflicting financial losses on gold investors that they are willing to suffer hundreds of millions of dollars of losses. After all, it's not their money.

The rising price of gold warns the general public that the government's tax policies and the central bank's monetary policies cannot be trusted. Worse, a rising price of gold transmits the availability of a profit opportunity: get rid of fiat money and purchase gold. Politicians and central bankers are frantic today to keep the general public from being aware of the enormous increase this taken place in the monetary base of every Western industrial nation. They do not want the public to perceive that the central banks are in panic mode because of the disaster has taken place in commercial bank balance sheets. Large commercial banks around the Western world are bordering on bankruptcy. Central banks and governments are intervening frantically to keep the banks' doors open, in order to keep the public confused about the implications of the worldwide economic recession that has come as a result of worldwide monetary expansion by central banks from the year 2000 until 2004.

Sounds plausible...

To see todays going gold lease rates, go to http://www.kitco.com ,
look on the left column, near the middle of the page. There are rates for 1m (month), 2, 3, 6, and 1 year. Right below that is a historical chart of those rates.

There is a page with big charts, http://66.38.218.33/lease.chart.html ,
but frequently, it is very slow to load.

These are the rates that bullion banks pay to load up on gold. Remember, there is no premium. You and I can not buy at those rates. They never have to return the gold. This is the source from which the darkness spreads. It is not the inheritance, as inheritance is quickly wasted.

To buy one tonne of gold today, a connected person would pay only 0.9840% a year, which equates to a payment of $279,159 , every year.

($882.40 per oz X 32 150.7466 troy oz = $28,369,818.79984, 0.9840% of $28,369,818.79984 is $279,159.0169904256)

This means that this connected someone can have more than a 100 years of enjoying the unearned wealth without even trying to make a single penny, without even lifting a finger, before the initial amount will be spent on payments.

Again, you and I, we are not allowed to "lease" gold from FED. Neither is Osama Bin Laden or anyone else, but the connected rich fat cats whose names we frequently don't even know.

Now, if that connected man or woman, wanted to take the gold under the contract that changes it's rate every month, then the US government (you and I) would actually pay that person for receiving a tonne of gold and never turning it back. The interest rate for "gold lease" on a monthly contract is, as you can see for yourself, -0.1587% , that's right, a negative number.

This means, that not only they can come and take a tonne of gold to never return it back, a value of $28,369,818 (on currently suppressed gold market), but they will also be paid for doing this.

This is a real reason for having the FED.

In this way, a connected person never needs to work as I and you do, or ever worry about their social security or health insurance.

Once you're a special person, then you go and buy a tonne of gold (or 100 tonnes), a physical quantity of gold that is worth $28,369,818 per tonne), sell it, then invest the proceeds at a very conservative rates, say, 2%. At such a rate, there is practically no risk.

After that, all you have to do is to pay half of the interest to the FED, and enjoy the whole gigantic pile of money and the other half of the interest.

Only suckers need to work.

(Again, this example only discusses the biggest rate, we don't even touch on the negative rate, where the FED pays you).