Is China's central bank aiming at becoming the world's largest holder of gold reserves? They are rapidly going in that direction.

China is importing large amounts of gold. Macquarie estimates that 1,800 tons went into China in 2013. This is hard to verify as China, unlike other countries, does not disclose gold import figures. !,800 would make China the world's top importer and would represent the bulk of annual mine production of 2,600 tons.

China's central bank has not reported its reserves since 2009, when they were 1,054 tons. Currently the US Fed has,or at least has title to, 8,000 tons, or about 30% of world central bank holdings. Given that the NY Fed, which holds, or at least has some sort of call on, 6,500 tons on behalf of other countries' central banks, is unable to return Germany's paltry 300 tons that were supposed to be on deposit there, one assumes that all the gold has been lent out, which is standard practice among central banks. But the fact that Germany cannot be repaid immediately indicates that the NY Fed is having trouble recovering its lent gold. The Fed lends gold to banks like JP Morgan, which then sells it. So one can assume JPM is short and having trouble covering, which would explain why this bank is the biggest taker of physical delivery on COMEX, although the numbers are not huge.

In this context, the gold price has so far held up fairly well despite massive ETF selling. (Of course, it depends on what one means by "fairly well.")

The basic question is what is the Chinese central bank up to? Rumors are that it wants to become the largest holder of gold reserves in the world. As of 2009, the Fed had 7,000 tons more. We don't know where the Chinese are now, however, but there are probably several thousand tons more to buy.