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According to foreign media, the reason why gold prices fell sharply on Friday, 7 June is that the People’s Bank of China (PBOC) suspended gold purchases to reserve funds in May after 18 consecutive months of buying, making spot gold hit a record high in May. This is because during that time of the incident, gold was boosted as a safe haven amid geopolitical concerns and economic uncertainties, and when the news was reported, gold was sold lower till the price fell by 1.5%.
According to the Chinese authorities, China held 72.80 million troy ounces of gold at the end of May unchanged from the end of April. Meanwhile, China’s gold reserves at the end of February reached $1.7096 hundred billion, up from $1.6796 hundred billion at the end of April.
Admittedly, the key factor in the recent surge in gold prices was demand from central banks worldwide over the past two years. The World Gold Council (WGC) said China’s central bank was the largest buyer of gold in 2023, net buyer of 7.23 million ounces, the largest in one year since 1977.
Gold rose to a record high of $2,450 per ounce in May 2024, boosted by purchases by the central banks of each country, particularly the Chinese central bank’s demand for gold bars to increase reserves and prevent the yuan’s depreciation.
Technically, the central bank’s purchase of gold is mainly a diversification of international reserves, because gold is something that the price will not go down and also decrease in quantity continuously. Gold also reduces risks from fluctuations in the dollar or local currencies, and reduces risks from other factors such as global geopolitical and inflation although gold is still a very small proportion of the reserves.
In the past, China has relied primarily on U.S. dollars to trade worldwide, with more than $3.2 trillion in reserves in the world (March 2024) Most of these are U.S. dollar assets such as cash, deposits, bonds, and bills. China also holds the second-largest number of U.S. bonds in the world after Japan.
Gold purchases continued for 17 consecutive months despite the high prices and many countries’ gradual sell-off can reflect China’s long-term strategy to reduce its reliance on the U.S. dollar which is a long-term strategy that may be continued in the future. At present, gold currently accounts for only 4% of China’s reserves
References from
prachachat / mgronline / kaohoon / bangkokbiznews
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