As all eyes in the U.S. focus on the Federal Reserve’s monetary policy decisions, China seems to be working on other plans. The nation’s central bank has spent the last ten months stockpiling gold in an attempt to devalue the U.S. dollar. As of August, the People’s Bank of China increased its reserves to 69.62 million ounces or just over 2,175 tons of gold.
Since November 2022, China has continuously increased its gold reserves, adding 6.98 million ounces of gold over the last ten months, allowing it to reach record high levels as of this month. China is one of the top gold buyers in the world, along with Poland, which only began its gold-buying streak in June.
“It is very likely for the People’s Bank of China, the country’s central bank, to further boost its gold reserves,” Huang Jun, an analyst at financial trading platform FXTM, explained. “As China reduces holdings in U.S. debt, the country needs to increase holdings in other assets, and gold is a rare, high-quality credit asset in the current environment.”
The central bank gold-buying movement is nothing new, and analysts predict it won’t end soon. According to a survey conducted by the World Bank Gold Council, 62% of nations plan on increasing gold reserves in the next five years. Last year, only 42% of survey respondents agreed with this statement.
“The rationale to increase gold holdings, therefore, comes as no surprise since ‘interest rate levels,’ ‘inflation concerns,’ and ‘geopolitical risks’ continue to be the leading factors in central bankers’ reserve management decisions as they were last year,” the World Gold Council explained.
In July, central banks purchased a total of 55 tons of gold, with China leading the purchasing spree. Both China and Poland purchased approximately 23 tons of gold, while a few other nations stockpiled smaller amounts. After July’s purchase figures came in, China cemented its status as the largest gold buyer year-to-date.
China only began regularly reporting its gold purchases last November. During 2022, its reserve statuses were largely unrepresented. Now, the World Gold Council can track its gold-buying spree.
Right behind China is Poland. The National Bank of Poland purchased 22 tons of gold in July, bringing its total to 299 tons before August. The central bank’s current purchase spree is just under its 100-ton target, so we can expect a few more large purchases from Poland.
Turkey’s central bank continues flipping back and forth between selling and buying. In June and July, the nation returned to net purchases, with a total of 17 tons added in July. Additional notable buyers included Qatar with a three-ton purchase, Singapore at two tons, and the Czech Republic, also with a two-ton purchase.
“It’s undeniable that the strength of central bank gold demand remains headline news. After recent heavy selling – largely from Turkey – monthly net purchases have re-established themselves in June and July. As such, we think this is a sector gold observers should continue to pay attention to,” the World Gold Council stated following the release of July’s purchase figures.
The World Gold Council noted factors like inflation, interest rates, and geopolitical concerns for the rising central bank gold demand. China, however, along with other nations, have another motive driving their gold-buying sprees. China hopes to devalue the U.S. dollar in an attempt to give rise to other currencies, like the yuan.
“That weaponization of the dollar is part of the reason why Russia, China, and other BRICS nations have vied for an alternative to the dollar,” Skylar Montgomery of GlobalData TS Lombard explained.
Gold is an integral asset in de-dollarization. Nations continue building their reserves in gold so they can reduce their reliance on the U.S. dollar. Whether this strategy will actually devalue the asset is still unclear, though it does drive excellent demand rates for gold.
“Why does the central bank own gold? Because gold will retain its value even when someone cuts off the power to the global financial system,” Adam Glapinski, the President of the National Bank of Poland, stated in 2021 when explaining the nation’s strategy for stockpiling gold. “Of course, we do not assume that this will happen. But as the saying goes — forewarned is always insured. And the central bank is required to be prepared for even the most unfavorable circumstances. That is why we see a special place for gold in our foreign exchange management process.”
As always, investors should consult their financial advisors before making any portfolio decisions.
