China could become a contender for the top spot among central bank gold buyers.
Last year, the official sector blew away all expectations as central banks around the world bought over 650 tons of gold combined, exceeding even the most bullish forecasts. According to a Bloomberg article, most predict that central banks’ insatiable appetite for bullion will continue this year, with calls for a minimum of 600 tons in official purchases by year’s end.
Yet the central bank gold-buying spree is seeing a new player enter the field. According to Bloomberg, China has expanded its gold reserves for the fourth straight month, adding 11.2 tons to its stockpile in March. This follows purchases of 9.95 tons in February, 11.8 tons in January and 9.95 tons in December.
The rapid increase in China’s reserves is significant for several reasons. Central bank gold purchases have traditionally been dominated by a few countries, with Russia continuously emerging above all others in terms of net purchases. And while last year saw a number of new countries enter the fray with several multi-ton acquisitions, the Bloomberg article states they were nonetheless one-time purchases. Conversely, Russia has kept up its buying pace month after month and ended the year with a total of 274 tons of bullion added.
If China continues expanding its reserves, it could very well become a contender for the top spot among central bank gold buyers. According to the article, this would mark the first time that Russia’s position on the ladder was threatened in recent memory, supporting the notion that central bankers are displaying an entirely new level of gold demand.
China’s massive bullion purchases also come during a time when the country’s economy seems to be slowing down. And, unlike Russia, whose purchases are a clear statement of de-dollarization, China’s buying comes during a time when relations between Beijing and Washington seem to be improving, reports Bloomberg.
All this spells good news for gold prices, which have recently climbed back to the key $1,300 level. China’s buying further sparked optimism that the central-bank buying trend will resume this year and possibly surpass last year’s figures. The country’s jewelry demand is also expected to increase by a substantial margin this year.
Bloomberg writes that Goldman Sachs’ analysts see gold reaching $1,450 an ounce by year’s end, noting that the metal’s long-term picture is decidedly bullish. Likewise, Citigroup thinks gold will settle around $1,400 by the end of year. Ed Morse, Citigroup’s global head of commodities research, took special note of last year’s 74% increase in central bank gold demand year-on-year.
Another point of interest is that the PBOC has gone through long stretches of not reporting its bullion purchases, with the general consensus being that the increase in transparency was conditional to the yuan’s inclusion in the IMF’s Special Drawing Rights basket, suggests the article. Because of this, many analysts speculate that China’s true gold reserves are far greater than the official figure states.