China’s Central Bank to Resume Gold Purchases as Prices Stabilize, Analysts Report

By Brijesh Patel and Ashitha Shivaprasad

SINGAPORE (Reuters) – China, recognized as the largest official sector buyer of gold, is anticipated to resume its buying spree once prices stabilize from the record highs seen in May, according to industry experts at a conference this week.

After increasing its gold reserves for 18 consecutive months, data from the People’s Bank of China (PBOC) indicated that its holdings remained unchanged in May, resulting in a notable decline in global spot prices on Friday.

"China’s data did show a pause," noted David Tait, CEO of the World Gold Council (WGC), during the Asia Pacific Precious Metals Conference in Singapore. "But they are just waiting and watching. If prices correct to the $2,200 per ounce level, they will resume again."

On Monday, benchmark prices stood around $2,300 per ounce following their largest single-day drop in 3.5 years due to China’s reported gold holdings. The market reached a record peak of $2,449.89 per ounce on May 20, spurred by expectations of interest rate cuts and robust central bank purchasing amid geopolitical tensions.

The PBOC regulates the amount of gold entering China through quotas assigned to commercial banks. It was the largest official sector gold buyer in 2023, acquiring net purchases of 7.23 million ounces, or 224.9 metric tons, marking the highest volume for any year since at least 1977.

In April, China’s central bank added 60,000 troy ounces of gold to its reserves. A survey by the Official Monetary and Financial Institutions Forum indicated that central banks worldwide plan to increase their gold exposure over the next 12 to 24 months.

"Central banks are buying gold and China is the main buyer. Sentiment on gold remains bullish due to geopolitical tensions and upcoming elections. We expect China to continue its purchases," stated KL Yap, chairman of the Singapore Bullion Market Association.

Gold is traditionally viewed as a hedge against geopolitical and economic risks and has become a favored investment in China, especially during times of economic uncertainty and a weakening yuan.

"The minimal gold buying reported by China in April and the zero purchases in May do not suggest they will not resume reporting in the future," commented StoneX analyst Rhona O’Connell.

In April, the Shanghai Gold Exchange increased margin requirements for certain contracts from 8% to 9% as prices surged to historical highs.