China Leads Central Banks in Gold-Buying Spree Amid Economic Uncertainty
Central banks worldwide are rapidly increasing their gold holdings, and China is at the forefront of this trend, according to the World Gold Council. This surge in gold purchases is motivated by a desire to diversify reserves away from the US dollar, as well as to address inflation concerns and economic uncertainty.
As countries strive to reduce their reliance on the dollar and explore alternative currencies for trade relationships, central banks have been actively buying gold. The bullion binge, observed throughout this year, reflects a broader effort to de-dollarize transactions by conducting them in local currencies.
The World Gold Council’s third-quarter report on the precious metal market states, “With central bank demand resuming its voracious pace after a slower Q2, we expect the annual total to approach last year’s record, and there’s an outside possibility it will exceed that figure.” Central banks have purchased a total of 800 tonnes of gold so far this year, a 14% increase compared to the same period last year. China alone accounts for an impressive 181 tonnes, with its central bank currently holding a total of 2,192 tonnes.
The third quarter witnessed the highest volume of gold purchases by central banks in 2023, contributing to an already prosperous year for gold buying. The heightened demand for the precious metal is a result of central banks’ efforts to reduce their exposure to the US dollar. Additionally, some countries are seeking to distance themselves from the greenback in response to the US imposing sanctions on Russia and freezing billions in foreign reserves after the Ukrainian conflict.
China has been a strong advocate for de-dollarization, evident in its increased currency swaps and non-dollar agreements with other nations. Moreover, China has been lowering its holdings of US Treasuries as part of its strategy. While the motivation for purchasing gold extends beyond geopolitical considerations, as the metal is considered a safe-haven asset that retains its value over the long term. Investors turn to gold during uncertain times, such as recessions or armed conflicts, as a means of protecting against inflation and currency depreciation.
China’s interest in gold can also be attributed to domestic challenges, including an economic slowdown impacting the yuan, real estate sector, and stock market. Furthermore, the global surge in inflation has further boosted the demand for gold, as many currencies have depreciated in the face of rising prices. Most recently, geopolitical tensions in the Middle East have caused gold prices to soar by 10% in just over two weeks, reaching a peak of $2,000 per ounce on Friday, the highest level since mid-May.
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