Forex Signal Bullish

China’s Central Bank to Reignite Gold Purchases as Prices Decline, Analysts Forecast

China’s Central Bank to Reignite Gold Purchases as Prices Decline, Analysts Forecast

By Brijesh Patel and Ashitha Shivaprasad

SINGAPORE (Reuters) – As the preeminent sovereign purchaser of gold, China is projected to rekindle its acquisition spree once prices retract from their May zenith, as the underlying rationale for gold remains robust, industry experts conveyed at a recent symposium.

Following an 18-month streak of augmenting its gold reserves, official figures from the People’s Bank of China (PBOC) revealed a cessation in May, precipitating a sharp decline in global spot prices on Friday. [GOL/]

“China’s figures indeed indicated a hiatus,” David Tait, CEO of the World Gold Council (WGC), mentioned to Reuters at the Asia Pacific Precious Metals Conference in Singapore.

“(However) they are merely biding their time. Should prices adjust to the $2,200 per ounce threshold, they will recommence their acquisitions.”

Benchmark spot gold hovered around $2,300 per ounce on Monday, subsequent to its most significant daily decline in three-and-a-half years following China’s reserve data disclosure.

The market attained a record high of $2,449.89 per ounce on May 20, propelled by anticipated interest rate reductions and steadfast central bank procurement, underpinned by geopolitical tensions.

The PBOC regulates the influx of gold into China via quotas allocated to commercial banks.

In 2023, it stood as the largest sovereign acquirer of gold, with net procurements amounting to 7.23 million ounces, or 224.9 metric tons, as per WGC data, marking the highest annual total since at least 1977.

China’s central bank augmented its reserves by 60,000 troy ounces of gold in April. A survey by the Official Monetary and Financial Institutions Forum indicated that central banks intend to amplify their gold exposure over the next 12-24 months.

“Central banks are accumulating gold, with China at the forefront. Sentiment towards gold remains optimistic due to geopolitical strains and upcoming elections. China is anticipated to escalate its purchases,” KL Yap, chairman of the Singapore Bullion Market Association, remarked.

Gold has long been esteemed as a safeguard against geopolitical and economic uncertainties, and remains a favored investment in China amidst ongoing economic concerns and a depreciating yuan.

“The minimal gold acquisitions by China in April, followed by none in May, by no means suggests they will cease reporting purchases,” StoneX analyst Rhona O’Connell asserted.

In April, the Shanghai Gold Exchange increased margin requirements for certain gold futures contracts to 9% from 8% after prices surged to unprecedented levels.