(Kitco News) – The streak of the People’s Bank of China (PBoC) pausing its gold purchases extended to a sixth month in October, according to official data released on Thursday.
China’s gold holdings stood at $72.8 million troy ounces, or 2,063.84 metric tonnes, at the end of last month. The value of those holdings rose, however, thanks to the continued appreciation of gold prices. As of September 30, the value of its gold reserves rose to $191.47 billion, up from $182.98 billion at the end of August.
Thanks to this price appreciation, the share of gold in the PBoC’s total reserves climbed to 5.7% at the end of October, up from 4.9% at the end of April.
The price of bullion has risen roughly 33% in 2024, with the yellow metal on track to record the largest annual gain since 1979 amid a myriad of supportive factors, including the start of the U.S. Federal Reserve's interest rate cut cycle, geopolitical tensions, uncertainty surrounding the U.S. Presidential election, and strong demand from central banks.
The PBoC was one of the main contributors to gold’s rise through April, with the central bank going on an 18-month buying spree. But that ended in May, the first month they announced a pause in their buying. Analysts widely agree that the high price of gold contributed to the decision as the PBoC didn’t want to overpay for the metal in a market it helped squeeze higher.
“What it says to me is they're not just going to keep paying up forever and ever,” Colin Cieszynski, Chief Market Strategist at SIA Wealth Management, told Kitco News at the time. “They've got a limit of how much they're willing to pay, and we've probably gotten to it.”
“Does it mean they're done, or did they have to take a break for any number of reasons? And if so, for how long? That's a big unknown,” he added.
According to the World Gold Council, this is a trend that is unlikely to be limited to China, as gold purchases by global central banks, which rose sharply in 2022 and 2023, are set to decelerate in 2024 but remain above pre-2022 levels.
“Another month of China refraining from buying indicates the PBOC is looking for a better price to build its gold reserves. We don't think China has changed its foreign exchange reserve strategy and so is looking for more gold, but deterred by the higher prices,” Nitesh Shah, commodity strategist at WisdomTree, told Reuters.
Previously, Shah said he believe the central bank would like to hold more gold but is waiting for “a more attractive entry point.”
“However, with global interest rates falling and geopolitical tensions rising, it looks like they may have to wait for some time for a price dip,” he added. “Given our forecast of prices rising to over $3,000/oz in the coming year, the central bank may want to consider building positions earlier.”
Analysts at Capital Economics told Kitco News in August that its only a matter of time before the PBoC resumes their gold buying as “China’s gold rush has much further to run” amid rising global tensions, economic uncertainty, and ongoing efforts to move away from the U.S. dollar.
“Against the backdrop of central bank buying, strong physical gold demand, and a surge in ETF holdings, China appears to have been a key driver of the rally in gold prices earlier this year,” they said. “Looking ahead, we think that China’s appetite for gold will grow as its economy slows down this decade. This will put upward pressure on gold prices and could be a greater source of volatility in gold markets over the coming years.”
And with the ongoing struggles in the Chinese real-estate market, gold is widely seen as a more secure long-term investment by a growing number of retail investors in the country who are eagerly awaiting the forecasted pullback to make further allocations.
“If I buy anything, it’s going to be gold,” Luo Jiejing, a Shenzhen hotelier, told Bloomberg last week. “It’s been around for thousands of years and holds its value. It is a rational choice.”
According to analysts at Capital Economics, the PBoC will return to buying gold once the market settles.
“Further ahead, though, we expect China’s demand for gold to strengthen and put significant upward pressure on prices over the rest of the decade,” the analysts said. “This is largely because we think fiscal stimulus will only delay, rather than prevent, the property-led economic slowdown. This will weigh on the performance of investment alternatives to gold, thus boosting the metal’s appeal as a safe store of value.”
