China’s gold-buying spree continued in August, helping to reinforce one of the most important structural sources of demand underpinning the precious metal.
The PBOC announced that it held 76.73 million troy ounces of gold at the end of August, up from 76.08 million ounces in July. That extends the buying streak to 22 months now.
Meanwhile, the reported value of China’s gold reserves surged to $350.08 billion – up from $306.35 billion in July.
Just be wary that the $43.7 billion jump does not mean China bought that amount of gold during the month. The value difference is mostly a reflection of the sharp rise in the market price of bullion, alongside the additional physical purchases.
So, why does China keep buying gold?
The big picture story is reserve diversification for the most part. Beijing holds enormous foreign-exchange reserves, historically dominated by dollar-denominated assets. Gold offers an asset that carries no sovereign credit risk and is less directly exposed to another country’s financial system. So, that is the key factor driving the demand for gold from China.
What does this mean for markets?
Well, continued PBOC buying provides an important structural floor underneath gold demand. And as a reminder, there is still heavy speculation that China is buying much more gold than what is being advertised by the monthly reports here.
That being said, this does not imply that prices will rise in a straight line. However, what this does is at least make a case that any deep selloffs or big pullbacks may be more likely to attract buyers amid persistent central bank demand.
This article was written by Justin Low at investinglive.com.