Gold prices rallied to six-year highs last week, as China has continued to boost its stockpile of the precious metal since December in a bid to move away from the dollar in the midst of the trade war with its major economic counterpart – the US.
The People’s Bank of China has purchased more than 70 tons of gold since December, according to the World Gold Council (WGC), marking a major shift as the official figures had remained unchanged from October 2016 to November 2018.
Other global central banks are also accumulating the precious metal in record numbers. Russia has been the top buyer of gold, adding about 274 tons to its reserves last year, while adding 78 tons of gold in the first 5 months of 2019 to its coffers, increasing the metal’s share in its international reserves by 3.7 percent, WGC reported.
Analysts say Beijing was doubling down on gold “to diversify its reserves” away from the dollar currency. The country has been selling off US Treasuries lately, with its holdings having plunged from a peak of $1.32 trillion in late 2013 to about $1.1 trillion in April.
“Beijing is worried US-China ties could get worse, so the PBOC has jumped to stockpile its gold reserves,” said Tom McGregor, Beijing-based journalist and political analyst, adding, “Gold is a safe haven investment.
Gold has been “quietly” outperforming most G-10 currencies since the US-China trade war began, Scotiabank commodity strategist Nicky Shiels told Kitco News. He described the latest rally as a “standalone gold breakout” that excludes the metal’s usual direct correlation with the US dollar.
The trade dispute between China and the United States, which began last year after Donald Trump slapped 25-percent tariffs on $50 billion worth of Chinese goods ostensibly in a bid to fix what he called Beijing’s "unfair trade practices". Since then, the sides have exchanged several rounds of duties.
entral banks bought close to 535 tonnes of gold in 2012, the most since 1964.
Gold purchases by central banks have slowed this year although the institutions remain net buyers of the metal in 2013.
The world’s central banks changed from being net sellers of the metal in 2009 after two decades of decreasing holdings.
Gold movements by central banks are closely watched by the market. None more so than the People’s Bank of China.
China’s gold reserves are officially put at 1,054 tonnes – a number officials haven’t updated since 2009.
Rumours about massive purchases – up to 6,000 tonnes according to some estimates – continue to circulate as the country seeks to diversify its massive foreign exchange reserves which are mostly held in US dollars.
Gold makes up little more than 1% of the country’s $3.6 trillion in reserves compared to more than 70% for the United States which holds 8,166 tonnes of gold in vaults.
Philip Klapwijk of Precious Metals Insights told Businessweek China may have bought 300 tonnes of gold in the first half of this year:
“The probability is that there’s some form of official purchases that have not yet been reflected in the monetary gold reserves,” Klapwijk said, referring to bullion declared to the International Monetary Fund. “Undoubtedly, that’s provided support for prices, which could have been weaker.”
Chinese consumer purchases of gold this year are forecast to jump 29% to reach 1,000 tonnes, overtaking India to become the world’s largest user, according to the World Gold Council.
The spot gold price dipped below the $1,300 an ounce level for the first time in three weeks on Friday, failing as much as $25 an ounce to a session low of $1,281.
The precious metal is down more than 23% in 2013, dropping to a near-three year low of $1,220 at the end of June, and is set break its unbroken 12-year bull run this year.
