One month ago, when everyone suspected that the PBOC's dramatic, 57% jump in gold holdings after a 6 year silence, to a "record" 1658 tons would be a "one-and-done" event, meant to facilitate China's admission into the SDR, we disagreed. This is what we said:
... now that the seal has been finally broken after so many years, and since today's update indicates that Chinese gold numbers are clearly goal-seeked with a specific policy purpose - to boost confidence - we await for the PBOC to start leaking incremental gold holding data every month (and especially in months when the market crashes) which will bring us ever closer to what China's true gold holdings are.
One month later, this is precisely what happened, when overnight the People's Bank of China reported that even as the price of gold dropped once more in the month of July after the epic June drubbing (when China supposedly "bought" over 500 tons of gold), it added another 610,000 ounces of the yellow metal, or 1.1%, bringing its total to 53,930,000 ounces, or 1677 tons of gold.
Our view on China's disclosure (if not accumulation: this has already happened and now the PBOC is merely picking the right moments to gradually reveal what its true gold holdings are) of gold have not changed: expect every month to see a modest, incremental increase in its gold holdings.
And while last month, the market took China's announcement as a disappointing update - speculation had been rife that China has over 3,000 tons of gold - today the market is slowly waking up to what we said a month ago, namely that China's official gold holdings are far greater than what is revealed and that the PBOC will simply keep increasing month after month, now that both FX and gold play a very specific policy role in what everyone now realizes is a global currency war.
Putting what China has just done in very simple context: China announces an increase in its gold holdings of over 58% in the past two months... and then this past week it devalues its currency by nearly 5% in just three days.
Even the most brainwashed Keynesians should be able to figure out what is going on by now.
One wonders how long until millions of Chinese citizens, badly burned on the stock market bubble, decide it is time to put their savings in gold once again.
But while none of this comes as a surprise to us, or our readers, what was perhaps more notable, was the latest plunge in Chinese FX reserves, which tumbled from $3.694 billion to $3.651 billion, suggesting in July China sold, via Belgium, another $40 billion or so in Treasurys just before China announced its devaluation. Expect confirmation of the recent Treasury selloff by "Belgium" when the Treasury releases its next TIC data update.