China buys gold for seventh straight month, adds 16 tonnes to reserves in May
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(Kitco News) - The gold market continues to struggle in neutral territory, with prices holding support above $1,950 an ounce but unable to retest resistance at $2,000 an ounce; however, there is still one consistent buyer of gold in the current environment.
China has bought 144 tonnes of gold since it started its latest shopping spree in November. The central bank's total stockpiles now sit at about 2,092 tons.
Analysts have noted that central bank demand has transformed the gold market since last year when the World Gold Council reported record official sector demand of 1,078 tonnes.
Analysts have said that central bank purchases are providing critical support, keeping prices at elevated levels.
In a recent interview with Kitco News, Tavi Costa, portfolio manager at Crescat Capital, said that he does not expect gold's growing importance in central bank reserves to change anytime soon.
"Escalating geopolitical conflict has increased the importance of owning a neutral asset with no counterparty risk that also carries centuries of credible history as a haven. Gold is the only asset that qualifies," he said in a recent report.
Costa added that through the 1970s, gold as a percentage of central reserves assets averaged about 40%; today, the average is just above 15%. He noted that if gold reserves were to get back to levels last seen more than 50 years ago, $3.2 trillion would flow into the precious metals market.
"It can't be stated enough how transformative central bank demand has been for the gold market," he said in the interview.
Analysts expect central banks to continue buying gold, even if the pace is lower than last year's record.
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Last month the World Gold Council released its 2023 Central Bank Gold Reserves Survey, revealing that 24% of those polled were looking to buy gold in the next 12 months.
Financial market concerns, planned purchases of domestic gold production, and portfolio rebalancing are driving the additional buying.
"Gold's 'historical position' continues to be the top reason for central banks to hold gold, with 77% of respondents saying that it is highly relevant or somewhat relevant," the survey said. "This was followed by gold's performance during times of crisis' (74%), 'long-term store of value / inflation hedge' (74%), 'effective portfolio diversifier" (70%), and "no default risk" (68%)."