China, known as the world’s largest official buyer of gold, is planning to resume purchasing gold once the prices drop from the record highs experienced in May. Industry experts discussed this at a recent conference, emphasizing that the fundamental reasons for investing in gold remain strong.
The People’s Bank of China (PBOC) had been consistently increasing its gold reserves for 18 months until May when official data showed that the holdings remained unchanged. This news caused a significant drop in global spot prices on Friday. David Tait, CEO of the World Gold Council (WGC), mentioned that China is currently in a waiting phase, closely monitoring the market. If gold prices decrease to around $2,200 per ounce, they are likely to resume their buying spree.
Currently, benchmark spot gold is trading around $2,300 per ounce, following a substantial drop after the PBOC’s data was released. The market had reached a record high of $2,449.89 per ounce in May due to expectations of interest rate cuts and increased central bank purchases driven by geopolitical tensions.
The PBOC regulates the amount of gold imported into China through quotas issued to commercial banks. In 2023, China was the largest official buyer of gold, purchasing 7.23 million ounces or 224.9 metric tons, the highest amount since 1977. In April, the central bank added 60,000 troy ounces of gold to its reserves.
According to a survey conducted by the Official Monetary and Financial Institutions Forum, central banks around the world plan to increase their gold holdings in the next 12-24 months. KL Yap, chairman of the Singapore Bullion Market Association, highlighted that China is expected to lead this trend as the main buyer of gold.
Gold has traditionally been seen as a safe haven investment during times of economic and geopolitical uncertainty. In China, it is a popular choice for investors due to ongoing economic concerns and a weakening yuan. Despite reports of minimal gold purchases by China in April and none in May, analysts like Rhona O’Connell from StoneX believe that China will likely resume its buying activity soon.
In response to the surge in gold prices, the Shanghai Gold Exchange raised margin requirements for certain gold futures contracts from 8% to 9% in April. This move aimed to control speculation in the market and stabilize prices.
Overall, the outlook for gold remains positive, with central banks expected to increase their gold reserves in the coming months. China’s potential return to the gold market after a brief pause could have significant implications for global gold prices and market dynamics. Investors will be closely watching China’s next moves in the gold market.
