Golden Break: Why China’s Central Bank Stopped Buying Gold

In an unexpected move, China’s central bank has paused its gold buying spree, halting an 18-month purchasing streak. This decision comes after gold prices surged to record highs earlier this year, driven by global geopolitical tensions and economic uncertainties. For the first time in over a year and a half, China’s gold holdings remained unchanged in May, signaling a break from their aggressive acquisition strategy.

The People’s Bank of China (PBOC) has been a major player in the gold market, significantly influencing prices. However, with gold reaching such high prices, even the PBOC has decided to take a step back. On Friday, official data confirmed that China’s gold reserves did not increase in May, marking the end of their continuous purchasing period.

This pause could put downward pressure on gold prices. According to Ewa Manthey, a commodities strategist at ING Bank, the PBOC’s pause “has left gold vulnerable to more downside pressure“. The benchmark spot gold price is currently around $2,300 per ounce, which is about 6% lower than its peak of nearly $2,450 per ounce on May 20.

Gold has traditionally been viewed as a safe-haven asset, and this year has seen its value rise by approximately 11%. This surge is largely attributed to ongoing geopolitical tensions and the global economic landscape. In China, gold has become a preferred store of value amid economic uncertainties and a weakening yuan.

Despite the recent surge in prices, Manthey notes that “gold’s record-breaking rally might dent demand for now.” This sentiment was echoed by the slow-down in the PBOC’s gold acquisitions starting in April. That month, the central bank bought only 60,000 troy ounces of gold, a significant drop from the 160,000 ounces in March and the 390,000 ounces in February, Bloomberg reported.

Before this pause, the PBOC had been the world’s largest institutional buyer of gold, purchasing 225 tons in 2023 alone, according to the World Gold Council. In comparison, Poland’s central bank, the second-largest buyer, acquired 130 tons during the same period.

David Tait, the CEO of the World Gold Council, mentioned in an interview with Reuters that China is “just waiting and watching.” He added that the PBOC might resume buying if gold prices correct to the $2,200 per ounce level.

As the global market continues to fluctuate, all eyes are on China to see when and if they will re-enter the gold market. For now, the pause presents an opportunity for other investors to assess their strategies amidst the shifting economic tides.

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