China, the top official buyer of gold, is expected to resume its bullion purchases once prices fall from record highs reached in May, as the fundamental arguments in favor of the metal remain valid, industry players said at a conference this week.
After increasing its gold reserves for 18 consecutive months, official data from the People’s Bank of China (PBOC) showed that its holdings remained unchanged in May, leading to a sharp decline in spot prices in the market world Friday.
“China data showed a pause,” David Tait, CEO of the World Gold Council (WGC), told Reuters on the sidelines of the Asia-Pacific Precious Metals Conference in Singapore.
“But they are waiting and watching. If prices recover to the $2,200 an ounce level, they will recover.”
Benchmark gold traded around $2,300 an ounce on Monday, after seeing its biggest daily decline in 3 1/2 years, following Chinese inventory data.
The market hit a record high of $2,449.89 an ounce on May 20, boosted by expectations of interest rate cuts and aggressive central bank buying fueled by geopolitical tensions.
The PBOC controls the amount of gold entering China through quotas granted to commercial banks.
It was the largest official buyer of gold in 2023, with net purchases of 7.23 million ounces, or 224.9 metric tons, according to the WGC, the largest for a year since at least 1977.
China’s central bank added 60,000 ounces of gold to its reserves in April.
A survey conducted by the Official Monetary and Financial Institutions Forum showed that central banks plan to continue increasing their exposure to gold over the next 12 to 24 months.
“Central banks are buying gold and China is the main buyer. Sentiment on gold is bullish due to geopolitical tensions and elections. China is expected to buy more,” said KL Yap, president of Singapore Bullion Market Association.
Gold has historically been seen as a hedge against geopolitical and economic risks, and has been a favored investment choice in China amid ongoing economic concerns and a weakening yuan.
“The fact that China’s gold purchases were minimal in April and zero in May does not imply, far from it, that they are not going to start again,” said Rhona O’Connell, an analyst at StoneX.
In April, the Shanghai Gold Exchange raised margin requirements for some gold futures contracts from 8% to 9%, after prices hit all-time highs (reporting by Brijesh Patel and Ashitha Shivaprasad in Singapore; editorial by Arpan Varghese and Jan Harvey).
