Russia's State Gold Reserves Nearly The Same As China's After Aggressive Russian Buying

Photo: Russia's State Gold Reserves Nearly The Same As China's After Aggressive Russian Buying

In the Western world, gold just isn't very interesting. Central banks were sellers of the yellow metal for a long time, but now, the gold reserves for countries like the United States, England, France and Germany are basically stable. There have been some squabbles recently about where sovereign gold is stored, but no real official purchases of note.

The Russian and Chinese governments on the other hand are adding to their gold reserves a rapid pace. Russian central bank gold acquisitions have been on a tear recently, and over the last decade, their reserves have grown by more than 1100 tonnes. In 2006 Russia had a modest 400 tonnes of gold in its sovereign stash, and at last count, they are sitting on nearly 1800 tonnes.

China has also been adding significant amounts to its nation's gold reserves, and as of their last official announcement in July of 2016, they were holding 1823 tonnes. This is up from 1054 tonnes in 2009, and a paltry 600 tonnes in 2003. It is worth remembering that the Chinese may be hording more gold in secret, as there are many who allege that China is buying gold through unofficial channels, so as not to disturb the market, and drive up prices.

Defensible Developments

Gold has become somewhat forgotten in the western world. Consumers in the United States purchase around 1% of the annual demand of the Chinese citizens, and perhaps 2.5% of the Indian populous. In a recent article by JS Kim, the structural differences between consumer gold buying habits in the USA and China are laid bare, and it becomes clear that the Chinese have a very different relationship with gold.

It should come as no surprise that the government of China has been adding gold reserves, perhaps to a degree that we can't currently understand. The acquisition of tonnes and tonnes of gold by China's central bank fits in culturally with the opening of the Shanghai Gold Exchange (SGE), which is reported to only deal in non-official (consumer) sales. JS Kim estimates that more than 65 million ounces will flow into to the Chinese consumer via the SGE this year, which is a significant amount of the annual gold production world wide.

In the west many don't understand that in most big Chinese cities there are retailers for both gold and silver, and across Asia precious metals are commonly bought by people in all walks of life. This can be contrasted by US consumers that generally prefer to buy low grade gold jewelry, if they buy gold at all.

Official Approval

There is no doubt that both China and Russia have made gold a state priority, and based on Russia's recent actions, they may very well be in a position to overtake China as the world's 5th largest holder of gold at a state level. The wild card is of course how honest China has been about its official purchases, and given their appetite for the yellow metal, some sleight of hand would be totally understandable.

Gold and Silver have always played a role in Asia, but with the rise of the consumer class in China and India, the way gold is viewed globally may be changing. The Silver and Gold Summit in San Francisco on November 20th and 21st will have a host of precious metals experts that will present diverse opinions on the international markets. If you want to keep up an all the changes that are happening both inside and outside of the western financial system, make it a point to attend!