(Kitco News) - China’s central bank restarted gold purchases in November after a six-month pause, and the Asian giant will likely continue to build up its bullion reserves ahead of Trump’s trade wars, according to Vladimir Zernov, Market Analyst at FX Empire.
Zernov noted that China spent half a year waiting for gold prices to fall, but they never did.
“China’s central bank did not buy gold since April as it hoped to increase its reserves at lower prices and waited for a strong pullback,” he wrote. “However, this pullback did not happen, and China’s central bank (PBOC) restarted its gold purchases in November. Apparently, the pullback towards the $2600 level was sufficient to lure PBOC back into the market.”
“Not surprisingly, the price of gold rallied after PBOC revealed its purchases,” he added. “The bank added 160,000 ounces to its reserves, which have grown to 72.96 million ounces.”
Zernov said that China’s move showed it remains committed to diversifying its central bank reserves amid rising tensions with the U.S.
“Trump’s victory in presidential elections may have played a significant role in China’s decision making,” he said. “The active U.S. sanctions policy has served as the key catalyst for gold markets as central banks have started to diversify their reserves to decrease their dependency on U.S. government debt.”
Trump’s hawkish stance on China has now triggered another round of gold purchases from the PBOC, which Zernov believes could last many months.
“Interestingly, gold prices did not manage to get back to historic highs after PBOC restarted its purchases,” he noted. “It looks that some traders are willing to take profits off the table ahead of the Fed decision.”
He added that Treasury yields also began to move higher in recent days, which is bearish for gold prices.
“In the long term, central bank purchases will continue to serve as the key bullish catalyst for gold markets,” Zernov concluded. “PBOC has returned to the market, which will provide additional support to gold prices.”
“While gold does not have enough time to get to the psychologically important $3000 level before the end of the year, it has a good chance to test this level in 2025.”
After hitting a high of $2,664.47 in the spot market just after 7 a.m. EST, gold prices continued to ladder lower on Monday morning. Spot gold last traded at $2,651.87 for a gain of 0.12% on the daily chart.
