As a reminder, the last time China gave an update of its official gold holdings was in April for 2009. This means China has been aggressively hoarding gold for the past three and a half years without issuing an official peep about where its inventory stands now.

Luckily, those who keep track of the newsflow have some idea.

As an even more important reminder, in December 2009, the China Youth Daily quoted State Council advisor Ji as saying that a team of experts from Beijing and Shanghai have set up a "task force" last year to consider growing China's gold reserves. "We suggested that China's gold reserves should reach 6,000 tons in the next 3-5 years and perhaps 10,000 tons in 8-10 years," the paper quoted him. Has China managed to accumulated 6,000 tons yet? We won't know for sure until the official disclosure which will come when China is ready and not a moment earlier, but at the current run-rate of accumulation which is just shy of 1,000 tons per year, it is certainly within the realm of possibilities that China is now the second largest holder of gold in the world, surpassing Germany's 3,395 tons and second only to the US.

Going back to the "important things", here is another one: in all of 2012, according toTreasury International Capital flow data, China has increased its Treasury holdings from $1,151.9 billion as of December 31, 2011 to just $1164.3 billion: a total increase of just $12.4 billion in 6 months: the slowest run-rate since China started to recycle in budget surplus into US paper.

David Fuller's view Gold has been an important store of wealth for China over thousands of years, although much of its earlier holdings were expropriated or squandered in the 19th and 20th centuries.

My guess is that China will continue to increase its gold bullion reserves until they exceed the USA's 8,133.5 tonnes. The now completed correction in gold between September 2011 and May 2012 provided a timely buying opportunity, and China will not have been the only growth economy to increase its bullion reserves.

Meanwhile, we have all seen or heard plenty of reports concerning "China's burst bubbles" and "hard landing", or even "economic collapse" over the last two years. These have mainly come from the west, which could be described as having some problems of its own.

China has certainly experienced a GDP growth slowdown, which is probably more significant than official statistics have reported. An economic slump in the USA and Europe in particular have contributed to China's declining growth rate, as has monetary tightening over the last two years, in a successful effort to partially deflate the property bubble caused by the aggressive monetary and fiscal stimulus in 1H 2009.

As of last Friday, China has switched from an incremental to a more aggressive economic stimulus (see also Eoin's report on 7th September: China Approves Roads to Subways Construction, Stocks Surge).


I think this is an extremely important development which has almost certainly established a new floor for the Shanghai A-Shares Index (weekly & daily). If so, this will be confirmed by the recent low holding, followed by the establishment of a new uptrend characterised by higher reaction lows, just as we have seen for the indices of many other important stock markets since June. However, China's late start and massive stimulus announced on Friday should give the A-Shares Index catch-up potential.

There have been false dawns for China's stock market previously, as the charts above show. However, the difference this time is the size of the stimulus, occurring from an even more oversold level and better valuations, plus last Friday's impressive upward dynamic.

There is a 'needs must' element to this stimulus but I think it also reflects the outgoing political regime's intention to both depart on a positive note and also provide the new regime, which takes over next month, with the monetary and fiscal measures for a sustainable recovery. If so, it should have profoundly bullish implications, not least for previously underperforming mining shares.