China extends gold buying streak to 22 months

The People’s Bank of China has extended its streak of consecutive monthly gold purchases to 22 months, adding 650,000 troy ounces to its reserves in August. This acquisition represents the largest single-month increase in the central bank’s holdings since 2023, surpassing the 640,000 ounces purchased in July. The data, released on Monday, indicates that China’s total gold holdings now stand at 76.73 million troy ounces, up from 76.08 million in the previous month. This accumulation continues a long-term trend of reserve diversification that has persisted since the country began disclosing monthly figures.

The reported value of China’s gold reserves has risen sharply to $350.08 billion, an increase from $306.35 billion a month earlier. However, this valuation jump is largely attributable to the rising price of the metal rather than the new tonnage added. Gold now constitutes close to 10% of China’s approximately $3.4 trillion in foreign exchange reserves. This proportion remains significantly lower than the 60% to 70% share of gold held in the reserves of the Federal Reserve and other major Western central banks, highlighting a continued structural difference in reserve composition.

Analysts suggest that the strategic accumulation is driven by concerns over the safety of dollar-denominated assets. The freezing of roughly $300 billion in Russian central bank reserves following Moscow’s 2022 invasion of Ukraine has led reserve managers globally to reassess the risks associated with holding foreign currency. Gu Fengda, chief analyst at Guoxin Futures, described China’s actions as a highly strategic and forward-looking deployment of reserves, rather than a short-term bet on gold prices. This view aligns with broader trends, as the World Gold Council reported that central banks added a record 288.9 tonnes in the second quarter, a 62% increase from the previous year.

Despite the strong institutional buying, the price of gold has faced recent volatility. The metal rallied nearly 10% in August, its best monthly performance since January, following the US Treasury’s announcement that it would at least double its buybacks of long-dated bonds to $4 billion per operation. This move was interpreted by traders as a response to high borrowing costs, contributing to a sell-off in the dollar. However, the momentum has since cooled, with gold trading between $4,395 and $4,428 an ounce on Monday and Tuesday. Stronger-than-expected US jobs data has increased the probability of a Federal Reserve rate hike at the September 15-16 meeting to nearly 60%, according to the CME FedWatch tool. Higher interest rates raise the opportunity cost of holding non-yielding bullion, creating a market dynamic where short-term traders price in potential hikes while central banks continue to buy on a multi-year horizon.