China double downs on gold in shift away from dollar

Aggressive buying by People’s Bank of China will be a support for prices this year

Henry Sanderson

China’s push to boost its gold holdings could see the country challenge Russia as the most aggressive buyer of the precious metal this year.

The country’s central bank, the People’s Bank of China, has bought about 32 tonnes of gold in the past three months. If it keeps purchasing at that rate, China would surpass Russia and Kazakhstan, leading buyers in 2018 which have tapered their acquisitions recently.

China is the world’s biggest gold producer but its gold reserves, at just under $80bn, make up a fraction of its total foreign exchange reserves of more than $3tn, meaning China is underweight the yellow metal, compared with peers. That 3 per cent share, for example, compares to 19 per cent for Russia.

The PBoC said this month that it increased its gold reserves by 10 tonnes in February, following purchases of 11.8 tonnes in January and 9.95 tonnes in December. That takes its total reserves to 1,874 tonnes, or 60.26m ounces.

In contrast, Russian purchases hit their lowest monthly level since December 2006 in January, with 6.2 tonnes of buying, according to Standard Chartered. Kazakhstan’s buying of 2.8 tonnes in January was also below its monthly average of 4 tonnes in 2018, according to the bank.

Central banks as a whole bought 651.5 tonnes of gold last year, the biggest buying spree for almost half a century, led by Russia, Turkey and Kazakhstan. Russia bought 274 tonnes of gold, its largest net purchase on record, according to the World Gold Council.

That, along with sustained demand for gold-backed exchange traded funds, helped gold prices hit their highest level in almost a year in February at $1,246.7 a troy ounce.

Gold has since fallen back to trade at $1,293 an ounce amid stronger equity markets and outflows from exchange traded funds which hold gold.

But continued buying by central banks could offer a “cushion” to the gold price this year, said Suki Cooper, a precious metals analyst at Standard Chartered in New York.

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