China has reported another gold reserve purchase, this time adding 10 tonnes of gold to their growing reserves. This represents the 15th consecutive month that China have reported buying gold for their reserves and puts them up to 2,245 tonnes. They could soon overtake Russia as the fifth highest country by gold reserves if their buying spree continues.
The bump to gold reserves comes as China continues to move away from the dollar as a reserve currency. Gold still represents a small percentage of China’s total reserve holdings, but since 2022 the country has been making strides to increase this. This month’s purchase of 10 tonnes does represent a reduction however compared to the kind of volume seen in other months.
This could be due to the country’s struggling economy, which has suffered a number of setbacks since the Covid pandemic hit in 2020. The property sector in particular has struggled under ballooning debt, with companies like Evergrande and Country Garden failing to make payment deadlines. Evergrande in particular represents billions in debt, and thousands of development projects in mainland China. A court in Hong Kong recently ordered the liquidation of Evergrande, a move that could have profound implications for the country’s real estate market.
Chinese stock markets have also been suffering from a sell-off in recent months. The Hang Seng Index has lost more than 40% in the past five years. This week has seen some recovery however as the Chinese government took steps to stop the rout, including replacing the head of the market regulator Yi Huiman.
China’s consumer gold market is also being closely watched, with the Lunar New Year taking place tomorrow Saturday 10th February. Chinese consumers have faced record high prices for gold recently, with the metal even trading at a premium on the Shanghai Gold Exchange versus the COMEX or LBMA. With the Year of the Dragon approaching, consumers would typically buy gold in the form of jewellery or bullion to mark the auspicious occasion.
The Central Bank’s purchases have been sending a signal to Chinese consumers for over a year now that gold is a safe way to protect your savings, and with so much economic trouble throughout the country, many investors in China are looking for just such a safe haven.