As gold prices surpasses the $2,300 mark for the very first time, due to geopolitical tensions and expectation of the US interest rate cuts, China’s role in yellow metal’s demand is now under spotlight. The People’s Bank of China (PBC) continues to lead the race, buying gold for 17 consecutive months. As a result of this, the bank was tagged as the most aggressive central bank buyer in 2023.
Since China is buying gold aggressively, experts believe that this move formed part of its strategy to ramp up gold holdings. People’s Bank of China has been tagged as largest official buyer of gold in 2023, with net purchases to the tune of ~7.23 million ounces, or ~224.9 metric tons, per World Gold Council. This figure was the highest for single year since at least 1977.
Gold is generally considered as a safe haven during economic and political turmoil. Conflicts with Middle East and Ukraine, together with increased inflation, led to higher demand of yellow metal. China’s aggressive buying is being considered as hedge against currency devaluation, with Yuan and the country’s stock market experiencing pressures due to economic challenges.
PBOC added ~5 tonnes of gold in March, and the country’s gold reserves touched ~2,262.4 by March end.
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Reasons behind China aggressive buying gold
Chinese consumers decided to buy gold mainly because their confidence in traditional investments such as real estate or stocks has declined. At the same time, China’s central bank continues to add to its gold reserves. China is slowly getting rid of its holdings of the US debt. Because China is buying gold aggressively, there are speculations which say that there is still significant room for appreciation.
China has significant sway in gold markets. But its influence got more pronounced during current bull run — ~50% rise in global price since the late 2022.
Gold has been reaching new heights even there are factors making gold a less appealing one. These include increased interest rates and a strong U.S. dollar. Gold prices went up by ~13% in 2024. This comes after the yellow metal increased over 10% in 2023.
Higher gold prices is supported by increased domestic consumption in China. China Gold Association mentioned that gold buying in the country went up by ~6% in 1Q24 in comparison to same period a year earlier.
In China, demand for gold jewellery increased by ~10%, with investments in Chinese bar and coins nearly tripling. The country is now being tagged as both the world’s biggest gold producer and largest consumer.
Why China is buying gold aggressively? Well, China continues to ramp up its gold holdings to diversify reserve funds. This can also help the country in reducing dependence on the US dollar, as this currency is being considered as most important currency to store in reserve.
Data suggested that China reduced the US Treasury holdings for over a decade. As at March, China was having ~US$775 billion worth of US debt. This was down from ~US$1.1 trillion in 2021.
China’s gold reserves
China holds ~72.80 million ounces of gold as of April end, which exhibits a rise from 72.74 million ounces a month before. Value of China’s gold reserves increased to $167.96 billion from $161.07 billion. World Gold Council believes that global central banks should begin to slow its purchases in 2024 in comparison to previous year’s 1,037.4 tons. However, these will be higher than they were prior to 2022.
As per the official data, China’s central bank has added ~60,000 troy ounces of gold to its reserves for April month. PBOC bought gold despite its increased prices.
World Gold Council has recently released data about gold reserves- country wise. China has been ranked 6th with gold reserves of 2,235.39 tonnes. This equates to $149,374.61 million.
While China is buying gold aggressively, there are emerging market economies which are also building up their gold reserves. By March end, India’s gold reserves came in at 822.1 tonnes, making up ~9% of the total reserves. The country has been ranked 10th largest holder of gold globally.
RBI’s gold acquisitions in 1Q surpassed the total purchases of ~16.2 tonnes in entire 2023. As of now, this year, only Turkey and China have made more gold acquisitions than India.
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