China’s central bank, the People’s Bank of China, is known for being the largest official sector buyer of gold. However, in May, their gold reserves remained unchanged, causing global spot prices to drop. Despite this pause, industry experts predict that China will resume its gold buying once prices drop from the record highs seen in May.
At the Asia Pacific Precious Metals Conference in Singapore, David Tait, CEO of the World Gold Council, mentioned that China is currently in a wait-and-watch mode. If gold prices correct to around $2,200 per ounce, China is likely to start buying gold again. Currently, benchmark spot gold is trading at around $2,300 per ounce after experiencing its biggest daily drop in 3-1/2 years following China’s data on gold holdings.
China’s central bank plays a significant role in controlling the amount of gold entering the country through quotas to commercial banks. In 2023, China was the largest official sector buyer of gold, with net purchases of 7.23 million ounces, the highest since at least 1977. Additionally, 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 worldwide plan to increase their exposure to gold in the next 12-24 months. KL Yap, chairman of the Singapore Bullion Market Association, highlighted that China remains a key player in the gold market, with expectations of buying more gold in the future.
Gold has always been considered a safe-haven asset, especially during times of geopolitical tensions and economic uncertainties. In China, where there are concerns about the economy and a weaker yuan, gold has been a preferred investment choice. Despite the minimal gold buying activity in April and zero purchases in May, analysts believe that China will resume its gold buying spree soon.
In April, the Shanghai Gold Exchange increased margin requirements for some gold futures contracts to 9% from 8% due to the surge in gold prices. This move indicates the market’s reaction to the rising demand for gold. Overall, industry players remain bullish on gold, expecting central banks like China to continue boosting their gold reserves in the coming months.