China's Gold Reserves Update Underwhelms

The gold market got a surprise Friday morning when China released data on its gold reserves for the first time in six years. 
The Asian nation revealed that at the end of June 2015, its reserves of the yellow metal sat at 53.31 million troy ounces, or 1,658 metric tons (MT) — that’s up 57 percent, or 1,054 MT from 2009, when it last released data.
China now holds the fifth-largest gold reserves in the world, having bumped Russia out of that position. However, it’s still a long way off from the 8,133.5 MT of gold that the US holds in reserve. Also ahead of the country are Germany, Italy and France.

No gold price reaction

Interestingly, while the gold price hit a five-year low of $1,129.80 per ounce on the heels of China’s announcement, market watchers don’t seem to think the news made much impact — positive or negative.
Explaining why that’s the case, Mark O’Byrne of Dublin’s GoldCore told Bloomberg, “[p]eople were expecting that they have bought a lot more. That’s why we haven’t seen much of a movement so far today. The big question is whether they now continue buying.”
Similarly, Leon Westgate of ICBC Standard Bank said to the Financial Times, “[i]f you like gold, the fact they bought it is a good thing but it’s not bullish in terms of the scale.”
Instead, market watchers are pointing to a stronger US dollar as the culprit behind the yellow metal’s poor price action. Comments released Thursday from US Federal Reserve Chair Janet Yellen are believed to have exerted pressure on the gold price — she reiterated that US interest rates will likely increase in 2015.

What’s next?

China considers its gold reserves a state secret, and as such doesn’t report holdings to the International Monetary Fund (IMF). That’s in contrast to most other countries, as per Reuters.
And despite Friday’s announcement, analysts don’t expect that to change in the future. The Financial Times quotes UBS Group (NYSE:UBS) as saying that the current update may be a “one-off transparency gesture” as the IMF considers including the renminbi in the special drawing rights (SDR).
Societe Generale (EPA:GLE) analyst Robin Bhar corroborated that statement, telling Reuters, “[t]here has been ongoing market chatter that China had been amassing gold, and that had gained more importance ahead of October, when the Chinese want to be included in the SDR. It was felt by many that they would be more open, and that would mean revealing any increase in their reserves.”
But while the update is likely not an indication of a move toward transparency in the Asian nation, investors can take it as a sign that China is looking to diversify its reserves. The Financial Times states that the country is looking to step back a little from the US dollar, a tough task considering the fact that its forex reserves are the largest in the world at $3 trillion.
In any case, investors will no doubt be watching to see if China’s disclosure does end up prompting the IMF to include it in the SDR.
 
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article. 
Related reading: 
Weekly Round-Up: Gold Price Hits Five-year Low