China has been accumulating a lot of bullion over the past decade. It is also the largest producer of gold in the world and – along with India – one of the biggest consumers of the yellow metal. According to the World Gold Council’s data on the second quarter of 2017, China accounts for about 28.6 percent of the jewelry demand, and for about 26 percent of total bar and coin demand. And China – with its almost 1843 tons of gold – owns the fifth largest gold reserves in the world.

Is China thus a key player in the gold market? Well, not necessarily, as the WGC underestimates the overall demand for the yellow metal, adopting an erroneous model of the gold market. As we often repeat, the annual gold demand and supply reported by the WGC are only a tiny fraction of gold that is traded in a year. And the largest marketplaces for gold in the world are London and New York – and these markets are where the price of gold is formed. So, although the share of Chinese investors operating on these markets is unknown, we believe that Western investors, or at least Western institutions, remain the key players in the gold market.

However, many analysts speculate that China’s gold reserves might be much higher than the official number, somewhere between 20,000 and 30,000 tons. It might be indeed the case, but it does not matter for the gold prices, as they are shaped not by stocks, but by flows of gold. And the central banks’ purchases, including transactions of the People’s Bank of China, are simply too small compared to the total volume of trade to support the price of gold.

But if only China reveals its true gold holdings, the gold prices would jump, wouldn’t they? Well, not necessarily. Remember July 2015, when the PBOC announced an almost 60 percent jump in its bullion reserves since 2009? The price of the yellow metal declined in response. It is hard to see why the announcement about past transactions and current holdings should impact the markets, which are forward-looking.