PBOC Halts Gold Buying Spree, Prices Drop Over $50 per Ounce

The People’s Bank of China (PBOC) reported no changes to its gold holdings in May, according to data released on Friday. This marks the end of a buying spree that lasted one and a half years. The recent rally in gold, which saw prices reaching record highs, has been heavily influenced by central bank purchases, especially from China, leading to a price drop of over $50 per ounce on Friday.

Since November 2022, China’s central bank had been consistently buying gold, with April marking the 18th consecutive month of such acquisitions, although that month recorded the smallest increase in purchases. The latest data shows that the PBOC’s gold holdings remained steady at 72.8 million ounces, unchanged from the previous month. The World Gold Council indicated that the first quarter of 2024 marked the most substantial increase in global central bank gold purchases since records began in 2000, with China being the leading contributor.

This continuous buying had been a significant factor driving the surge in gold prices, supported by central bank interest, consumer demand, and notably strong purchases from China. The World Gold Council also acknowledged the existence of unreported buying that is not captured in their data, suggesting that the true scale of central bank purchases might be even larger.

The PBOC’s decision to halt purchases at a time when gold prices are at their peak appears to have triggered a market reaction. Analysts at RBC Capital Markets warned in a note that without further purchases from central banks and sustained consumer demand, the ongoing rally in gold prices may be at risk, potentially presenting better opportunities to enter the gold market before the year’s end.