After October’s World Gold Council data came through, China has officially spent the last 12 months stockpiling gold at enormous rates. Despite the nation topping the charts for gold purchase rates, analysts suspect that its gold reserves extend far beyond the official numbers. China has long been accused of unreported gold purchases, and given its recent shopping spree, now may be the perfect time to investigate this discrepancy.
China’s most recent official purchase was of 23 gold tons, completing its 12-month purchasing spree. Now, China’s official gold holdings amount to 2,215 tons, according to the World Gold Council.
Throughout the year, China has been leading the ranks in gold purchases. Each month, China tops the charts, purchasing the most gold, just ahead of other key players, like Poland. Because of China’s monumental gold purchases, central banks are in line to meet or exceed last year’s record-breaking total.
According to Dominic Frisby, the founder of FlyingFrisby.com, China’s real gold accumulation numbers are likely much higher. Frisby believes China’s official gold data is a strategy meant to gently acquaint the market with the concept of their true gold-buying strategy.
“They’re breaking the news gently. China is extraordinarily ambitious,” Frisby explained in an interview with Michelle Makori, the Lead Anchor and Editor-in-Chief at Kitco News, during the New Orleans Investment Conference. “I’ve probably studied this more than anyone, and I will tell you why China’s gold holdings are probably ten times what they say they are. And the math on this is quite simple.”
China is the globe’s top gold importer and producer. Despite this shining position, the country’s motto is “We must not shine too brightly,” according to Frisby.
In the last century, China has produced around 7,000 tons of gold. “More than 50% of Chinese gold mining is state-owned, and China does not export any of the gold it produces. So all the gold that China has mined has stayed in China,” Frisby explained.
When looking at imports, we do not know how much gold China has purchased from Switzerland, London, or Dubai; however, analysts like Frisby certainly have some estimates.
“We know that a lot of gold that enters China goes through the Shanghai Gold Exchange. And we know that 22,000 tons of gold have been withdrawn from the Shanghai Gold Exchange in this century,” Frisby explained. “So that’s 22,000 tons and 7,000 tons — 29,000 tons, and there was another 4,000 tons already in China in the year 2000 that was state-owned.”
Based on these calculations, Frisby estimates that China has at around 33,000 tons of gold, with at least half being state-owned. That state-owned portion (16,500 tons) is double what the U.S. holds.
If China admits to the U.S., “We got twice as much gold as you,’ that’s tantamount to a declaration of war,” according to Frisby. The yuan would become more valuable, gold would become more valuable, and China would become the leader of both of these assets.
If this occurs, China’s 3 trillion U.S. dollars would immediately become devalued, which the nation is not ready for yet. Because of this, China is slowly introducing its gold assets to devalue the U.S. dollar gradually.
“If China goes to war with the U.S., it will weaponize money,” Frisby claimed. “If China wants the yuan to be the global reserve currency, all it has to do is make it freely tradable with gold.”
Frisby explained that every couple of months, China announces that it has more gold than previously claimed. This strategy introduces the market to the idea that the global force will one day take over the ranks with its gold reserves. Right now, China only has 4% of its reserves allocated to gold, according to official reports, though based on Frisby’s estimations, the figure could be as much as 10 times beyond this percentage.
When looking at other central banks that are purchasing gold at similar rates, nearly all of the nations lie along the Silk Road, a network of Eurasian trade routes spanning 6,400 kilometers. Many of these nations are part of the Shanghai Cooperation Organization, leading analysts to believe that the gold-buying efforts are part of a greater strategy to devalue the U.S. dollar while moving toward a new universal trade currency.
Following this outlook on significant gold holdings, Frisby believes that “Gold looks like it’s getting ready to move. There’s a good chance that gold gets to $2,700 and maybe even challenges $3,000 next year.”
As always, investors should consult their advisors before making any portfolio decisions.