China Central Bank Increases Gold Reserves in Response to Local Premium Trends

China increased its gold reserves during September, signifying the eleventh straight month of net gold purchases from the People’s Bank of China. The purchase did not come as a surprise, considering the nation’s rising local bullion prices in response to recent import restrictions. With the local premium market on the rise and investor demand spiking, it only makes sense that the central bank wants to continue stockpiling bullion to move away from the U.S. dollar toward something more stable.

According to official data released on Saturday, China purchased 840,000 troy ounces of bullion during September. In the last two years, the People’s Bank of China has established itself as one of the top gold buyers of all central banks around the globe.

In August, central bank demand remained high, though only a few key players led the pack, according to the World Gold Council’s report released a few days ago.

“This recent buying suggests that we have now firmly moved past the net selling we saw in April and May,” the World Gold Council explained, “which was primarily driven by heavy, non-strategic selling from Turkey. We are therefore confident that the long-term trend of healthy central bank demand remains in place.”

August marked the third consecutive month of collective net gold buying from central banks. Central banks purchased a total of 77 tons of gold during August, representing a 38% increase from the month prior. The combined net purchases from June through August came to 219 tons for all central banks, strongly outweighing the three months prior of just 96 tons.

“Buying, however, continues to be sizeable but limited to a small number of banks,” the statement continued. “The People’s Bank of China once again led the pack, adding a further 29t during the month.”

August’s confirmed purchases brought China’s year-to-date net figure to 155 tons, though September’s numbers will bring the total to around 181 tons. Since the People’s Bank of China began buying gold in November, it has purchased 217 tons, excluding September’s figures, or 243 when including the most recent purchases. The central bank’s total reserves came to 2,165 tons by the end of August, meaning bullion accounted for a bit over 4% of the nation’s total reserves.

By now, China’s total reserves are likely close to 2,191 tons. With only 4% allocated to bullion, the central bank still has a lot of room for gold purchases, considering its de-dollarization strategy.

“Suffice to say, central bank buying remains healthy,” the World Gold Council concluded. “Even accounting for the net sales earlier in the year, the pace of buying so far this year suggests that we are on course for another strong annual total. We’ll cover overall central bank demand for Q3 and y-t-d in our next Gold Demand Trends report, which will be published at the end of October.”

Numerous factors have contributed to China’s ramp-up in gold buying. To start, concerns over the state of the economy have created a level of safe-haven buying, with investors flocking toward more secure assets like gold to protect their wealth.

At the same time, the nation imposed import restrictions last month, reducing how much gold could enter the nation, which spiked demand and local prices to record levels. With people flocking toward gold in fear of the tightening import restrictions, the spread between local and international prices reached an all-time high. While the import restrictions may be lifted now, demand for gold in China remains high.

Following the end of import restrictions, premiums may have fallen, though the central bank’s purchasing activity did not waver. China continues buying gold at leading rates, with a few nations following suit, including Poland, Turkey, and Uzbekistan.

According to the World Gold Council, the National Bank of Poland purchased 18 tons of gold during August, lifting its year-to-date net total to 88 tons, just under its 100-ton goal. Poland’s gold reserves now sit at 314 tons, accounting for 11% of the nation’s total reserves, which displays the potential that China could reach if it continues its current buying pace.

Turkey purchased 15 tons of gold during August, while the Central Bank of Uzbekistan purchased nine. Other significant buyers included the Central Bank of Russia at three tons, the Reserve Bank of India at two tons, the Czech National Bank at two tons, Singapore’s central bank at two tons, and the National Bank of the Kyrgyz Republic at one ton.

Despite the excitement of these numbers, investors should always consult their financial advisors before making portfolio decisions in response to gold market trends.

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