Debatable numbers in "Why the U.S. is Letting China Accumulate Gold"

Written by Yichao Wang, GEI Associate

James Rickards recently mentions in Why the U.S. is Letting China Accumulate Gold that, as the second largest economy in the world, China should accumulate the right amount of gold corresponding to its fast-growing economy. Nevertheless, three numbers that he uses are debatable.

First, what is China’s real gold holding? As Rickards admits, the number of 0.7 percent of GDP is official and misleading. The actual gold holding of China is much higher. According to Alasdair Macleod, one of the best analysts of the gold market, in China’s gold strategy:

“The Chinese government could have easily accumulated in excess of 20,000 tons by the end of 2002.”

Bill Holter also supports Macleod’s assessment and further explains how and why this might have been achieved. This number is estimated to be about 30,000 tons now. As a result, China does not need more gold to reduce its economic vulnerability.

Second, we should also consider the reliability of China’s GDP growth rate. As it is indicated in The Reliability of China’s Economic Data: An Analysis of National Output, written by Iacob N. Koch-Weser,

“National aggregate GDP should be equal to the sum of GDP of each province in China. However, there is a serious discrepancy between nominal GDP at the provincial and national level.”

Because local governors get promoted based on local economic growth rates, they may exaggerate the GDP Growth Rate. By combining other indicators such as the amount of cargo freight and bank loans, it could be determined that China would have a lower GDP. Consequently, the percentage of gold reserve to GDP would be much higher than the official number.

The third number that we should question is the gold reserves of the U.S. It is widely believed that the U.S. does not have 8,000 tons of gold it claims. According to Chris Martenson, the US exported about 5,500 tons of gold from 1991-2012. However, it only had about 1,000 tons of surplus gold available for export. It must be the Fed or the Treasury that leased them out because no other private source is big enough to account for that amount. The actual shortfall could be even higher than 4,500 tons if we count private investment.