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Central Banks Are On A Gold Buying Spree – China Largest Buyer

Published April 10, 2024 4:16 PM
Shraddha Sharma
Published April 10, 2024 4:16 PM

Key Takeaways

  • Central banks globally are reportedly purchasing gold in record amounts.
  • China’s central bank made its largest annual purchase in 2023 since 1977.
  • Gold prices have reached a new high, surpassing $2,300 per ounce, driven by central bank demand and delayed rate cut expectations.

Central banks globally are reportedly amassing gold at unprecedented rates. The past two years have seen purchases exceeding 1,000 tonnes. February alone saw purchases of 19 tons by the central banks as per The Kobeissi Letter. Notably, China’s central bank spearheaded this buying spree, adding a staggering 225 tonnes to its reserves in 2023 alone. Alongside soaring gold prices, what does the trend reveal?

Central Banks’ Gold Rush

The Kobeissi Letter noted the massive uptick in gold acquisitions by central banks since early 2022. Specifically, the People’s Bank of China (PBOC) has been on a buying streak for 17 consecutive months, with Russia also ramping up its gold purchases. Analysts believe that accumulation is a diversification tactic and a broader strategy in response to global economic pressures.  

Amid this buying frenzy, gold prices have skyrocketed, setting new records. As of April 10, the price of gold reached over $2,300 per ounce, indicating demand that continues to push prices upward.

The surge is partly attributed to the diminished confidence in immediate rate cuts, making gold an investment for stability and a potential hedge against inflation.

China and India Lead in Net Additions

According to the World Gold Council report, central banks’ net gold purchases totaled 1,037 tonnes in 2023, slightly below the record  in 2022 but still marking a significant year-on-year investment. The report highlights China and Poland as the leading buyers. In terms of accumulation, China, India, and Turkey lead in net additions .

John Meyer from SP Angel suggests  that China could be buying more gold to reduce reliance on the US dollar. The country has made the most aggressive purchases  since 1977. He also mentions that China is facing economic difficulties, particularly with problems in its property market, and there might be a risk that the value of its currency could drop.

China’s aggressive gold acquisitions have not only bolstered its reserves but also caused fluctuations in the gold ETF market. As per Bloomberg, China has temporarily halted  trading in ChinaAMC CSI SH-SZ-HK Gold Industry Equity ETF.

According to commodity influencer Eric Yeung, Chinese authorities are setting limits on how much gold can be traded  on the Shanghai Futures Exchange (SHFE) to prevent the speculative trading of paper gold from affecting the price of real gold at the Shanghai Gold Exchange (SGE), especially during high demand time.

Is China Moving Away From Dollar?

The recent gold-buying spree by central banks, spearheaded by China, and the resultant surge in gold prices aim at financial security. As China continues to stockpile gold, the ETF market is in a frenzy. Analysts see the accumulation by PBoC as strategic. But it is to be seen if China can combat its economic vows with gold reserves.

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