China has increased its gold reserves for the 10th month in a row, extending its efforts to diversify from the greenback by building up a massive stockpile of gold. The People’s Central Bank of China revealed last week that its gold holdings went up by 930,000 troy ounces (29 tons) last month, bringing the country’s total gold reserves to around 2.165 tons.
China has been at the forefront of a historic gold-buying run by central banks in recent months, adding around 217 tons of gold to its reserves since last November. The Asian nation’s central bank began scooping up gold in 2022 at an unprecedented rate and was joined by several central banks from around the world in a gold-buying boom that lasted through 2022 and has continued into 2023.
Although increasing interest rates put downward pressure on gold prices, sustained demand from central banks led by China helped to underpin gold prices in recent months. Ongoing inflation and an uncertain economic landscape should have caused investor interest in gold as a safe haven asset to skyrocket, but consistent interest rate hikes by the U.S. Federal Reserve pulled investor interest away from gold to interest-paying assets and impacted gold prices. However, increased gold shipments to China have made the precious metal more susceptible to demand shifts.
While other nations are expected to reign in their gold purchases compared to last year’s historic highs, Beijing seems set on maintaining its purchases. The decision to freeze the Kremlin’s dollar reserves by the American government and its allies likely contributed to increased mistrust in the U.S. dollar, BullionVault head of research Adrian Ash says, and spurred countries such as China to diversify away from the dollar into gold.
America and allied nations issued a series of sanctions against Russia in the wake of the Ukraine invasion to cripple the Kremlin’s economy and hamper its war efforts. With political tensions between China and the U.S. rising, Chinese leadership is likely apprehensive of the fact that the U.S. can leverage its position as a global superpower against the country. As such, China is keen on limiting its reliance on the U.S. dollar and has been making moves aimed at achieving this goal.
Aside from building up the nation’s gold reserves, Chinese leadership has bolstered China’s relationship with fellow BRICS nations Brazil, Russia, Indi, and South Africa. BRICS is a group of G20 nations seeking to move away from the dollar as a reserve currency and carry out trade among themselves in their local currencies.
As more central banks grow their gold reserves, extraction companies such as Newmont Corporation (NYSE: NEM) (TSX: NGT) are likely to enjoy a better market for the precious metal.
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