Chinese Central Bank Resumes (Official) Gold Purchases

After a six-month pause, China's central bank officially resumed gold purchases in November. 

According to data released by the People's Bank of China, it added about five tons of gold to its reserves in November. 

China was the biggest central bank gold buyer in 2023, but it stopped announcing increases to its reserves in May. 

Even with the pause, China still added nearly 30 tons of gold to its official reserves through the first half of 2024.

A drop in the gold price may have motivated the resumption of Chinese gold buying. The yellow metal was down about 5 percent last month after hitting a record high just below $2,800 in October. 

Despite the correction after Trump's electoral victory, gold is still up around 28 percent on the year. 

One analyst told Reuters that the sudden resumption of buying could indicate the Chinese central bank has accepted the higher price levels. 

"The resumption will send a signal that the PBOC has grown accustomed to these record-high price levels and is prepared to build reserves regardless."

Reuters also reported that the central bank's return to the table may support Chinese investor demand. It has been muted since the People's Bank of China paused increasing its official reserves. 

When the Chinese paused increasing gold reserves in May, it precipitated a panicked gold selloff. Despite the kneejerk reaction, I said at the time that it was unlikely that the Chinese were finished adding gold to their reserves. 

China has a history of adding to reserves and then going silent.

The People’s Bank of China accumulated 1,448 tons of gold between 2002 and 2019 and then reported nothing for more than two years before resuming reporting in the fall of 2022. Many speculate that the Chinese continued to add gold to its holdings off the books during those silent years.

Even with China out of the picture, central bank gold buying has been robust in 2024. October was the biggest month of the year, boosting official central bank purchases to 754 tons for the year after a record third quarter. 

China Likely Has More Gold Than Reported

There has always been speculation that China holds far more gold than it officially reveals. In 2015, Jim Rickards pointed out that many people believe that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE).

Last month, Jan Nieuwenhuijs reported that the People's Bank of China secretly bought large amounts of gold, even as official buying was on pause. Nieuwenhuijs has shown that the Chinese central bank covertly purchases gold in the London Bullion market through bullion banks.

"Since the war in Ukraine began, there has been more supply in the Chinese market than sold through the SGE; the 'surplus' reflects what the PBoC buys," Nieuwenhuijs wrote.

According to Nieuwenhuijs's analysis, China recently bought about 60 tonnes of gold. 

The World Gold Council often notes "unreported" gold buying in the central bank sector. Most analysts think this represents Chinese buying off the books.

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