(Kitco News) - In a move surprising to absolutely no one, China’s central bank has reentered the gold market, ending a six-month pause.
The latest data from the People’s Bank of China showed the central bank bought five tonnes of gold last month, according to Krishan Gopaul, Senior Analyst, EMEA at the World Gold Council.
He added that China’s official gold reserves have increased to 2,269 tonnes.
China’s return to the gold market came as prices experienced a sharp correction and significant volatility following Donald Trump’s victory in the U.S. Presidential election. Gold prices have continued to struggle throughout December.
Even with the six-month hiatus, the PBOC has purchased 34 tonnes of gold this year and remains one of the top gold buyers of 2024. Despite the increase, gold still represents less than 6% of China’s total foreign exchange reserves.
According to data from the London Bullion Market Association, spot gold prices last month averaged around $2,650 an ounce, down 1.4% from October’s average price.
For this reason, many analysts believed that it was only a matter of time before China jumped back into the market. In a recent interview with Kitco News, Nitesh Shah, Head of Commodities & Macroeconomic Research at WisdomTree, said he suspects China needs to increase its gold holdings to at least 10%, if not 20%, of its official foreign reserves.
“It’s not an if, it’s a when, and quite frankly, I don’t think they can wait for much lower prices because they could end up waiting forever,” he said. “China still has a relatively low amount of gold relative to other FX assets, and they will want something higher if they don’t want to be beholden to other [Group of 7] economies.”
Rhona O’Connell, Head of Market Analysis for EMEA & Asia at StoneX, said in a note published over the weekend that although she is skeptical about the latest purchases, they could have a psychological impact on the market.
“I take the Chinese six-month ‘pause’ with a pinch of salt, as it is public knowledge that the PBoC has a history of reporting no purchases and then declaring a massive quantum leap in recorded holdings,” she said in the note. “It is possible, this time, that they did hold off from purchases from the international market at high prices, which may have distorted the ratio of gold to total FX and signaled a cessation, especially as the reported increase in November was moderate.”
“The actual tonnage is neither here nor there, given that gold spot market turnover is typically more than 70 times global mine production,” she added.
In another recent interview with Kitco News, Jesse Colombo, an Independent Precious Metals Analyst and Founder of the BubbleBubble Report, said that consistent demand from China will continue to support gold’s long-term uptrend. He added that this is why he continues to advocate buying gold on dips.
Colombo also pointed out that, although China stopped announcing gold purchases over the last six months, it is unlikely that it stopped buying gold.
In a note on Saturday, he said that the PBOC’s announcement could spur new demand among Chinese consumers, potentially propelling gold to $3,000 an ounce.
