Venezuela is trying to sell its gold while Russia and Europe are buying. Overall, central banks added over 651 tonnes of gold to their coffers in 2018, more than any other year since 1971, the year the gold window closed. Flying under the radar, however, is China, which has started adding gold to its reserves in greater quantities this year.
China’s official gold holdings are shrouded in mystery, as most people suspect that its official holdings, published at over 1,800 tonnes, are significantly under-reported. The official figures make China the world’s 6th-largest holder of gold. But China has long since become the world’s largest producer of gold, with nearly 429 tonnes of gold produced in 2017. That’s comfortably ahead of Australia, Russia, the United States, and Canada. Former number one South Africa is now in seventh place.
And since most people believe that most of the gold mined in China remains in the country, there’s a lot of suspicion that the government is adding to its reserves stealthily, not reporting purchases from domestic miners. Why would China do that?
Well, for one thing, the Chinese government wants to try to diversify away from the dollar. With trillions of dollars of dollar-denominated foreign exchange assets the Chinese are somewhat beholden to the US government and its monetary policy of continually weakening the dollar. That erodes the value of China’s foreign exchange assets. There’s also the question of whether or not China is looking to form its own gold-exchange standard, gold-backed yuan, or gold-backed payments system to rival or even replace the dollar in international trade.
China’s moves, purchasing around 10 tonnes in December and 11.8 tonnes in January, are yet another indicator that gold continues to play a vital monetary role around the world. Investors would do well to ignore what central banks say when it comes to monetary policy (praising quantitative easing) and focus on what they do (buy gold when crisis is on the horizon). And they would do well to purchase enough gold to safeguard their hard-earned assets and keep their savings from losing value during the coming financial crisis.