30 January 2014

Watching the China 2710 tonne reserves meme creation

It was quite interesting watching a meme happen in real time when the gold blogosphere turn this Bloomberg story, which just said (my emphasis) "China may have vaulted ahead of Italy and France last year to become the third-largest holder of gold, according to a Bloomberg Industries report" into a fact. The chain seems to have been:

Bloomberg article picked up by Jeffrey Nichols (China’s Central Bank Buys Gold on the Sly) which was picked up by Shanghai Daily (China Expected To Announce It Has More Than Doubled Its Gold Reserves) picked up by Zero Hedge and then morphed into a fact by Shanghai Metals Market which was picked up by Max Keiser with this title China Expands Gold Reserves, Surges Past Italy & France in Ranking giving it a much wider distribution and validation.

I got hold of the actual Bloomberg Industries report on which all this was based, which was put out by Kenneth Hoffman. He is the money quote from the report:

A deeper look into China's gold holdings shows its reserves may be more than 2 1/2 times higher than thought. Its last reported holdings in April 2009 were 1,054 metric tons. After adjusting for net imports from Hong Kong and domestic output, the figure is closer to 5,086 metric tons. When taking away gold uses for jewelry, industrial and other categories and adding implied bar demand to central bank holdings, the figure is likely closer to 2,710 mt.

The funny thing for me is that Kenneth's 2710 tonne calculated figure on which all this hoopla was focused, is, in my opinion, flawed. What he has done is just looked at HK imports and China mine production (not factoring in any non reported imports) and only taking away jewellery, industry and other usage. What is left is, as he correctly says, is "implied bar demand". The flaw is he adds all of this to China's reserves. This assumes that no private investors get any gold bars at all. The fact is that some of the implied bar demand went into private hands and if you consider that, then his 2710 tonne figure would be lower.

Next week I will have a post out on what I think China's government controlled holdings of gold are, and how much is held privately within China. I'll work on seeing if I can get a Chinese website to misinterpret my article into a fact to help it go viral.


  1. an even easier to see example of meme creation was the BAFIN story...everyone up to Eric Sprott said that BAFIN had found metals manipulation that was worse than LIBOR which is undeniably, patently, false and not what the story said.

  2. @KD,

    You're right about the Bafin story. It did not incriminate anyone. The funny part happened a day after when Deutsche Bank announced leaving the London Gold Fix seat.

    To me, that sounds like an admission of guilt. Or something.

  3. The chinese are smart enough not to tell the truth on this matter.

    In April 2009 they reported owning 1054 tonnes of gold.

    Now imagine this... in late 2014 the chinese report (ie. they send up a "trial balloon") their holdings now being at 1100 tonnes. Folks then completely freak out, as the chinese have only added an extra 46 tonnes. The price of gold then collapses and the chinese swoop in and enjoy a buying frenzy at dirt cheap prices. Then they come out with a corrected statement, saying that in fact they owned 6000 tonnes, but picked up 2000 extra the other day when prices collapsed. Yippee. Good on them.

    The folks who sold the 2000 tonnes will be feeling sick, as they have been played for fools by the smart chinese.

  4. Well, Bron, Kid and Jeff have told us so many times that there is NO gold manipulation. Doesn't exist...just a goldbug, tin foil hat conspiracy. Now, regulatory authorities are investigating gold/silver manipulation. Why then would they even bother to investigate? Its just smoke here folks...no real fire to investigate. Keep drinking the kool aid.

  5. Anon,

    That is a funny comment, given I am on record here on my blog and elsewhere as saying I believe in manipulation, but not supression, of the gold price.

    Any more straw men you have? It does help if you actually research the person you aim to criticise.

  6. and the folks who are experts in precious metals advise us that any move downwards in price is due to manipulation.

    but when the price moves up, this is because the free market has overpowered (albeit temporarily) the manipulators.

    can someone please convert the above logic into a mathematical logic equation?

  7. That's quite a fine line that you walk there Bron. Kind of a George Orwell interpretation of PC correct newspeak.

  8. There should be no question that prices can be manipulated both up and down. Couple of questions for you: Are there position limits that restrict major bank manipulation? Why Not? Did the April 12 gold event happen? Was it investigated? Why not? Keep drinking the Kool Aid. Sing along: "Everything is beautiful in it's own way" Be Happy.

  9. From these few statements we can only conclude that central
    banks are no natural friends of gold; or as previously noted, the
    ‘lenders of last resort’, the raison d’être for central banking and the
    gold standard are incompatible.
    If central bankers cannot be trusted and are not in a position to
    handle the patrimony of the people, built up by generations
    dedicated to hard work, in a trustworthy manner, then they are not
    the right people for the task. However, I suspect that they may have
    forgotten the lessons of history. But what is driving the bullion
    Their only motive was to make money. They made legendary
    amounts of money with the ‘Gold Carry Trade’. By borrowing gold
    from the central banks at a 1% lease rate, then selling the gold
    (thereby flooding the physical gold market with an artificial supply)
    and investing the proceeds in Treasury securities at 5%, they were
    making fortunes. Who can blame them?
    It was the Chairman of the Fed, Alan Greenspan, himself who
    invited them to do so by declaring before the House Banking
    Committee on July 24, 1998, and again on July 30, 1998 before a
    Senate Agricultural Committee, that: “[…] central banks stand ready
    to lease gold in increasing quantities should the price rise.“ By
    allowing an unprecedented manipulation of the gold price, the
    central banks laid the foundation for the biggest money game in
    Nobody cared that the manipulating (a strong, but truthful
    assessment) governments, central banks and bullion banks, were
    completely ignoring the free market process. Greedy bullion banks
    were permitted to eat away the profits that should have gone to the
    gold mining companies, their shareholders, workers and last, but not
    least, the poor gold producing countries. During the last forty years
    of an openly rigged gold market with the manipulative activities of
    the gold pool, which continue to this day, none of the gold mining
    companies’ managements ever protested

    the all too obvious
    suppression of the gold price.

    Gold Wars, page 144

  10. anon @ 14:#6 - on the contrary - I have written more than one blog post detailing the BLATANT MANIPULATION OF GOLD PRICES:



  11. Thanks Bron!

    I look forward to receiving your take on things. I am enjoying the increase in posts. The more info the better....

    Don't mind the haters, your comments are greatly appreciated.

    Regardless of one's position on gold, your insights are refreshing and help people gain better perspectives on the subject. I'll make up my own mind, but I am thankful for your candid commentary.

    Keep on rockin' in the free world!