China’s central bank paused its gold purchases for the fourth consecutive month in August, as revealed by official data released on Saturday.
At the end of August, China’s gold reserves remained unchanged at 72.8 million troy ounces. Despite the unchanged quantity, the value of these reserves increased to $182.98 billion from $176.64 billion in July, driven by a rise in gold prices that surpassed $2,500 per ounce last month. Gold prices have surged more than 21% this year.
The People’s Bank of China (PBOC) halted its 18-month streak of net gold purchases in May, causing significant turbulence in the gold market and triggering a sharp selloff. Market observers noted that the PBOC’s decision to pause buying indicated a limit to how much they were willing to pay for gold.
Colin Cieszynski, Chief Market Strategist at SIA Wealth Management, commented on the market reaction, stating, “What it says to me is they’re not just going to keep paying up forever and ever. They’ve got a limit of how much they’re willing to pay, and we’ve probably gotten to it.”
Analysts are uncertain whether the PBOC’s pause is a temporary measure or a sign of a longer-term shift. “Does it mean they’re done, or did they have to take a break for any number of reasons? And if so, for how long? That’s a big unknown,” Cieszynski added.
Capital Economics analysts believe that the PBOC’s suspension of gold purchases is likely temporary. They argue that China’s gold accumulation is expected to resume due to rising global tensions, economic uncertainty, and efforts to reduce reliance on the U.S. dollar. The firm noted that China’s earlier purchases played a key role in driving up gold prices.
“China’s gold rush has much further to run,” Capital Economics stated. “We anticipate that as China’s economy slows over the next decade, its appetite for gold will increase, pushing gold prices higher and potentially increasing volatility in the gold markets.”
In the near term, Capital Economics predicts that the PBOC may continue to hold off on purchases until gold prices retreat from their current highs. They cite several factors, including weakening jewelry demand, anticipated fiscal stimulus, and expected improvements in the stock market, as reasons for a potential short-term decline in gold demand.
“Higher prices are already affecting jewelry demand, and while fiscal stimulus may offer a temporary boost, gold’s attractiveness relative to other assets is likely to diminish,” the analysts said.
Despite this pause, Capital Economics anticipates a stronger demand for gold in the future, particularly due to expected economic challenges related to the real estate sector. “We foresee that China’s demand for gold will intensify, putting significant upward pressure on prices as the decade progresses,” they concluded. “Fiscal stimulus will likely only delay, not prevent, the anticipated slowdown, thereby enhancing gold’s appeal as a safe investment.”
As of Monday, spot gold traded at $2,497.35 per ounce, just below the $2,500 mark.
