“Whoever has the gold makes the rules” runs the old saying.

So, where’s the gold?

Who’s producing? Who’s buying? Who’s selling?

In today’s Money Morning we look at international gold flows – with a particular focus on China.

The US government has the biggest gold pile – but for how long?

The US government remains the world’s largest gold owner. It has 8,133 tonnes – amounting to more than 70% of US foreign exchange reserves – most of which is stored in Fort Knox. That’s almost an ounce per citizen, and close to 5% of all the gold that has ever been mined (roughly 175,000 tonnes).

Data-superman Nick Laird projects that if you add private and institutional holdings to that number, there are 26,000–27,000 tonnes in the US. That would be about 15% of all the gold that has ever been mined.

The US is top dog. It has the gold. And, internationally, it makes the rules.

But for how much longer? There are changes afoot.

China is now the world’s largest gold producer. It has held this title since 2007 when it overtook South Africa and it shows no sign of handing back the mantle.

Chinese gold production amounted to around 453 tonnes in 2016, according to the China Gold Association. The next largest producer, Australia, is some way off – about 180 tonnes lower. We don’t have the exact numbers yet for 2016, but it is likely to be close to the 273 tonnes it produced in 2015.

In third place we have Russia (250 tonnes), followed by the US (216 tonnes) and Peru (176 tonnes). South Africa has slid to a lowly seventh place.

In other words, about 15% of total global production is Chinese. And here’s the thing – of all that gold it produces, China barely exports an ounce. It keeps all of it. Not only that, but China is the world’s biggest importer. This title used to belong to India, but China became the leader in 2014.

Importing gold was something China began in earnest in 2011 – around about the time that gold peaked at $1,920 an ounce. The longer the bear market has gone on, the more China has bought. I’m not sure if that makes them canny buyers or the opposite, but something is going on and, when you consider the cumulative effects, it is something big.

China’s huge gold hoard is only getting bigger

China does not give us the precise import figures – arriving at them involves some sleuthing and there’s no one better at this than precious metals analyst, Koos Jansen.

In 2011 China imported most of its gold via Hong Kong, which does provide the figures. Imports came in at just below 400 tonnes – considerably more than the entire reserves of the UK (310 tonnes).

In 2012, China started importing from Switzerland too. In 2013, imports reached 1,400 tonnes. In 2014, China added the UK to the list of countries it imports from and in 2015, Australia. 2015 was a record year for imports – not far off 1,600 tonnes, roughly equivalent to Russia’s entire reserves.

And so to 2016. Jansen collates the export numbers from Hong Kong, Switzerland, the UK and Australia to arrive at the figure of 1,300 tonnes, down slightly on the previous year, but still 30% higher than total Swiss reserves.

In total, since 2011, China has imported more than 5,000 tonnes. That’s more than is in the vaults of the International Monetary Fund (IMF), and more even than Germany’s holdings (around 3,400 tonnes). Another three years at a similar rate, and China will have imported more gold than there is at Fort Knox.

The cumulative impact is astonishing. Add China’s domestic production into the equation, as well as the recycling of scrap, and it seems that since 2009, more than 12,000 ounces of gold have either been produced in, or imported to, China.

It’s pretty easy to start drawing the conclusion that China is planning to return the world to some kind of international gold standard and thereby undermine US imperial and economic might by destabilising the dollar.

China isn’t going to return us to the gold standard – yet

It’s at this stage that I have to say: “Slow down! Slow down!” Not all of the gold is going into the vaults of the People’s Bank of China (PBOC). No need to make a run for the hills just yet.

China has encouraged private accumulation of gold, so much of the gold is falling into domestic hands. Again, just how much is difficult to quantify. Bron Suchecki of the Perth Mint, studying gold flows, argues that China aims for private citizens to accumulate 55% of flow – with the remaining 45% going to commercial banks and the Chinese central bank (the PBOC).

The latest statement from the PBOC is that it holds 1,842 tonnes. Given the amount of gold that has made its way to China, that 1,842 tonne number does seem suspiciously low – or at least towards the lower end of what is credible.

And it is likely that the Chinese would understate this number, first so as not to push the price up when they are still in accumulation mode; secondly, so as not to throw down any “we’re as powerful as you” gauntlets at the US.

But that is pure speculation on my part. Jansen tells me that his sources think the number is probably double the official number.

He has put together this chart, which estimates not all the tea, but all the gold in China.

But that growth in reserves since 2009 is quite something. At this rate China will soon be making all the rules.

It’s worth noting by the way that while US holdings amount to more than 70% of its foreign exchange reserves, China’s official gold holdings amount to just 2%. China could double or triple the amount of gold it owns, and it would still only amount to 4% or 6%. Even the UK’s paltry hoard amounts to 8.5%.

China needs more gold, and it seems to be trying to acquire it as discreetly as possible.

There are several takeaways from all this.

First, all of the gold that has made its way to China over the last few years stays there. It doesn’t come back. If ever there was a symbol of the transfer of wealth and power from east to west this is it.

Chinese gold imports may be down ever so slightly on 2014, but it is still an accumulator of physical metal – by far and away the world’s biggest.

If ever there is a Western buying spree, and China continues to hoard what it has, the lack of supply is going to push the price higher more quickly than in previous bull markets. We got a taste of this in the first six months of last year.

If China becomes a net seller, look out below. But I don’t think there’s too much danger of that.

This article was originally published by MoneyWeek and can be read here