Watching the China 2710 tonne reserves meme creation

It was quite interesting watching a meme happen in real time when the gold blogosphere turn this Bloomberg story, which just said (my emphasis) "China may have vaulted ahead of Italy and France last year to become the third-largest holder of gold, according to a Bloomberg Industries report" into a fact. The chain seems to have been:

Bloomberg article picked up by Jeffrey Nichols (China’s Central Bank Buys Gold on the Sly) which was picked up by Shanghai Daily (China Expected To Announce It Has More Than Doubled Its Gold Reserves) picked up by Zero Hedge and then morphed into a fact by Shanghai Metals Market which was picked up by Max Keiser with this title China Expands Gold Reserves, Surges Past Italy & France in Ranking giving it a much wider distribution and validation.

I got hold of the actual Bloomberg Industries report on which all this was based, which was put out by Kenneth Hoffman. He is the money quote from the report:

A deeper look into China's gold holdings shows its reserves may be more than 2 1/2 times higher than thought. Its last reported holdings in April 2009 were 1,054 metric tons. After adjusting for net imports from Hong Kong and domestic output, the figure is closer to 5,086 metric tons. When taking away gold uses for jewelry, industrial and other categories and adding implied bar demand to central bank holdings, the figure is likely closer to 2,710 mt.

The funny thing for me is that Kenneth's 2710 tonne calculated figure on which all this hoopla was focused, is, in my opinion, flawed. What he has done is just looked at HK imports and China mine production (not factoring in any non reported imports) and only taking away jewellery, industry and other usage. What is left is, as he correctly says, is "implied bar demand". The flaw is he adds all of this to China's reserves. This assumes that no private investors get any gold bars at all. The fact is that some of the implied bar demand went into private hands and if you consider that, then his 2710 tonne figure would be lower.

Next week I will have a post out on what I think China's government controlled holdings of gold are, and how much is held privately within China. I'll work on seeing if I can get a Chinese website to misinterpret my article into a fact to help it go viral.