China Hoards More Gold As Central Banks Move Away from Dollar Holdings

(Jul 09, 2019 - Charleston Lim)

China's central bank has decided to once again raise its gold reserves as the country attempts to further diversify its holdings. The People's Bank of China (PBOC) announced this week that it had added around 10.3 tons to its reserves for the month of June. The announcement marks the 7th consecutive month that the bank had bolstered its gold reserves. In the last six months ending in May, the PBOC has added a total of close to 74 tons to its gold assets.

According to economists, China's hoarding of the precious metal is its way of ensuring its rise as a superpower and as a safety measure in case of a worst-case scenario.

The move is also its way of diversifying away from its US dollar holdings amid its ongoing trade conflict with the United States. Economists also predict that the trend will likely continue in the coming months if the geopolitical situation doesn't get better.

Last week, Poland's central bank announced a similar measure. The country has reportedly more than doubled its gold assets over the past two years, making it the top holder of the asset in Central Europe.

The purchase of gold by different central banks has significantly increased demand for the precious metal. Aside from China and Poland, Russia is one of the biggest buyers of the safe-haven asset.

Other central banks are expected to increase their purchase of gold this year. The increased demand for the safe-haven metal is attributed to the rising geopolitical tensions, including the rising tensions in the Middle East and the ongoing trade dispute between various nations. The worsening situation, coupled with slowing economic growth, has pushed banks to diversify away from the US dollar.

Last year, global central banks purchased a total of 651.5 tons of gold. This was a 74 percent year-on-year increase. According to analysts, global gold purchases could reach more than 700 tons this year.

This will be very likely if China continues its buying spree and Russia matches its previous year's purchase of 275 tons.

The increased purchase of the safe-haven asset by major central banks has resulted in the rally of gold prices globally. Spot gold traded 0.5 percent higher this week, ending at $1,406.90 per ounce on Monday.

The commodity has so far rallied to a six-year high as investors bet on possible rate cuts by the Federal Reserve. Gold-related stocks have also jumped in the past few months, with most gaining a technical outlook of being bullish to very bullish.