For the seventh straight month, China added a significant amount of gold to its official reserves.
The People’s Bank of China’s gold hoard grew another 10.3 tons in June, according to information released by the bank. Over the last seven months, the Chinese have increased their gold reserves by just over 84 tons.
The latest purchases raise China’s official reserves to 1935.56 tons.
Analysts say China’s gold-buying spree is part of the government’s “determined diversification” away from the US dollar. Last month, TD Securities global head of commodity strategies Bart Melek said trade tensions and a potential technology cold war have accelerated the Chinese rush away from dollar assets.
We have to remember that gold is nobody’s liability.”
As the Chinese buy gold, they have also been divesting themselves of US Treasurys. In April, China sold off $7.6 billion in US debt, following on the heels of the biggest US Treasury selloff by the Chinese in nearly 2 1/2 years in March. After a four-month pause, the big March sell-off resumed a trend of Chinese Treasury divestment we saw in 2018. Over the last 12 months, the Chinese have shed $69 billion of its Treasury securities.
Oversea-Chinese Banking Corp. economist Howie Lee told Bloomberg he expects China to continue buying gold as it seeks to become a bigger player on the world stage.
Aside from its attempt to diversify its holdings of dollars, owning more gold reserves is also an important strategy in China’s rise as a superpower.”
In December 2018, the People’s Bank of China announced the first addition of gold to its reserves since 2016. The Chinese have a history of going long periods without officially adding gold to its stores and then suddenly revealing a large increase in its reserves. In 2009, the People’s Bank of China stopped reporting its gold holdings. Then in June 2015, the Chinese central bank suddenly announced its gold hoard had grown by 57%.
For a little more than a year, the PBOC regularly announced additions to its gold reserves. Chinese gold holdings rose another 185 tons over the next 16 months before the bank suddenly went silent again.
During the last gold-buying spree, China was pushing for the inclusion of the yuan in the International Monetary Fund’s benchmark currency basket.
Many analysts believe China holds far more gold than it officially reveals. As Jim Rickards pointed out on Mises Daily back in 2015, many people speculate that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE). Given the political dynamics and the ongoing trade war, it seems unlikely the Chinese suddenly stopped increasing their gold reserves in 2016.
China isn’t the only central bank buying gold. The world’s central banks accumulated 651.5 tons of the yellow metal last year. The World Gold Council noted that 2018 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second highest annual total on record. That trend has continued in 2019. According to the most recent WGC data, central bank gold buying was 78% higher through the first half of this year compared to the same period in 2019.
During an interview on RT Boom Bust, Peter Schiff called this a “global gold rush on the part of central banks” in preparation for a dollar crisis.
The days that the dollar is a reserve currency are numbered and the smart central banks are trying to buy as much gold as they can before the number is up.”
US weaponization of the dollar has helped spur the central bank gold-buying spree, along with efforts to create alternatives to the dollar-based SWIFT payment system. SchiffGold’s Mike Maharrey talked about this trend recently during an interview on RT. calling the weaponization of the greenback “risky business.”
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