The recent pause in China’s gold buying spree is expected to be short-lived, with industry players predicting a resumption once prices ease from the record highs hit in May. China, the biggest official sector buyer of gold, has been steadily increasing its gold reserves for 18 consecutive months. Despite a halt in May, experts believe that the fundamental case for the metal remains strong, leading to a potential surge in purchases in the near future.
David Tait, CEO of the World Gold Council (WGC), highlighted that China’s decision to pause its gold buying was temporary. He noted that if prices correct to the $2,200 per ounce level, China is likely to resume its purchases. Currently, benchmark spot gold is trading around $2,300 per ounce, following a significant drop after the news of China’s unchanged holdings in May. The all-time high of $2,449.89 per ounce in May was driven by interest rate cut expectations and central bank buying amidst geopolitical tensions.
The People’s Bank of China (PBOC) controls the inflow of gold into the country through quotas to commercial banks. In 2023, China was the largest official sector buyer of gold, with net purchases of 7.23 million ounces, the highest amount since at least 1977. Additionally, China’s central bank added 60,000 troy ounces of gold to its reserves in April, indicating a strong appetite for the precious metal.
A survey conducted by the Official Monetary and Financial Institutions Forum revealed that central banks are planning to increase their exposure to gold in the next 12-24 months. KL Yap, chairman of the Singapore Bullion Market Association, emphasized that China remains a key player in the gold market, with expectations of continued buying. With prevailing geopolitical tensions and upcoming elections, sentiment towards gold remains bullish.
Gold has long been perceived as a safe haven asset during times of economic and geopolitical uncertainties. In China, where economic concerns and a weakening yuan persist, gold is a preferred investment choice. The recent pause in gold buying by China does not signify a long-term shift in strategy, according to StoneX analyst Rhona O’Connell. Despite minimal purchases in April and zero in May, experts anticipate a return to substantial buying in the near future.
In response to soaring gold prices, the Shanghai Gold Exchange raised margin requirements for some gold futures contracts in April. This move aimed to curb speculative trading and stabilize the market. Such regulatory changes have a direct impact on gold prices, influencing the buying behavior of major players like China.
While China’s pause in gold buying may have caused a temporary dip in global spot prices, industry players remain optimistic about a resurgence in purchases once prices ease. With geopolitical tensions rising and economic uncertainties looming, gold continues to be a valuable asset for central banks and investors alike. China’s role as a significant buyer of gold is expected to drive market trends in the coming months, reinforcing the metal’s status as a safe haven in times of volatility.
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