World’s largest gold consumer
China (MCHI) is the world’s largest gold consumer. It doesn’t report its gold reserve holdings to the IMF (International Monetary Fund) periodically like other countries. This is why market participants eagerly awaited the gold reserve holdings update from China.
China’s gold holdings rose by 57%
China announced its gold holdings on July 17. The holdings rose by 57% from 1,054 tons in April 2009 to 1,658 tons in June 2015. Although this is a huge jump, it was much lower than what analysts were expecting. It was almost half the amount that analysts expected based on Chinese domestic production and trade data. This led to negative sentiment in the market. It saw gold bullion fall to a five-year low on July 20.
Based on this number, China is the fifth largest holder of gold in the world—after the US, Germany, Italy, and France.
For a long time, the market has been talking about China’s drive to amass gold to bolster its position. China wants to be included in the special drawing rights basket of the IMF. Currently, the basket includes the US dollar, yen, pound, and euro. However, the disclosed reserve holdings underwhelmed the markets. This was the main reason that the negative gold sentiment prevailed, despite a 57% rise in holdings.
In turn, this negatively impacted gold prices (GLD) as well as the prices of gold equities like AngloGold Ashanti (AU), Gold Fields (GFI), and Barrick Gold (ABX). Combined, AngloGold and Gold Fields account for 8.70% of the VanEck Vectors Gold Miners ETF (GDX).