According to official data from the Chinese Communist Party (CCP), in September, the CCP central bank has not purchased any gold reserves for the fifth consecutive month, primarily due to the soaring price of gold.
So far this year, the price of gold has risen by approximately 28%, on track to achieve the largest annual increase in 14 years. This is mainly attributed to the Fed’s rate cuts, geopolitical tensions, and strong demand from central banks around the world.
As of the end of last month, China’s gold reserves remained at 72.8 million troy ounces. Up until May this year, the CCP central bank – the People’s Bank of China (PBOC) had been purchasing gold reserves for 18 consecutive months.
The frenzy of CCP gold purchases began in November 2022. In 2023, the PBOC became the world’s largest official gold buyer, significantly increasing its gold purchases by 30%. According to data from the World Gold Council, central banks globally bought 1,037 tons of gold last year, with the PBOC purchasing more gold than all other central banks combined.
Nitesh Shah, a commodity strategist at WisdomTree, told Reuters that with the rise in gold prices, the PBOC has decided to continue pausing purchases and waiting for the right timing.
“However, with global interest rates falling and geopolitical tensions escalating, it seems they (CCP central bank) may have to wait some time before seeing a price decline. Considering our forecast that gold prices will rise to above $3,000 per ounce in the next year, central banks may want to consider building positions early,” he said.
Carsten Menke, an analyst at Julius Baer, mentioned in early September to Reuters that despite high gold prices, they anticipate the PBOC will resume purchases at some point, driven more by political motivations such as reducing reliance on the US dollar as a reserve asset, rather than economic factors.
According to JPMorgan and others, if there is a decline in gold prices in the future, central banks and other physical gold consumers will remain robust buyers, supporting overall gold price increases. Gregory Shearer, Head of Base and Precious Metals Strategy at JPMorgan, recently stated, “We believe the level of gold prices has a minimal impact on long-term central bank buying programs, but price movements seem to affect the pace and rhythm of net purchases.”
Data from the World Gold Council shows that central banks worldwide have been actively buying gold from 2022 to 2023, but the pace of purchases has begun to slow since 2024, although it remains higher than pre-2022 levels. The slowdown in gold purchases is partly due to the PBOC pausing its gold acquisitions.
Furthermore, compared to other major economies, the total gold reserves of the PBOC still account for a small portion of its overall reserves. A recent Reuters report quoted an unnamed Chinese policy insider in internal discussions mentioning that China’s gold holdings as a percentage of its reserves are the lowest among all major economies.
The report also suggests that the CCP’s central bank has temporarily halted gold purchases due to excessively high gold prices.
Meanwhile, for ordinary Chinese investors, Philip Klapwijk, Managing Director of Precious Metals Insights, a consulting firm in Hong Kong, predicts that amid limited investment options in China, a prolonged crisis in the real estate sector, volatile stock markets, and the devaluation of the Renminbi, the demand for gold as a hedge will further increase.
“In this scenario, there is a considerably large amount of capital available for assets like gold, and in reality, for new buyers, the funds accessible are quite substantial,” Klapwijk told Bloomberg in April, highlighting, “There are not many alternatives in China. Under foreign exchange and capital controls, you cannot simply consider investing funds in other markets.”