China’s Gold purchases this year will exceed the entire holdings of all but about 20 countries worldwide
China’s gold buying to top 200 tons this year, Barclays says
Country seeks to diversify its reserves.
China will press on with gold purchases this year and the central bank will probably scoop up more than 200 metric tons as the country seeks to diversify its reserves, according to an estimate from Barclays.
Bullion purchases by the People’s Bank of China in recent months have been very steady, which is “particularly impressive given that China’s total forex reserve has recorded large declines,” analyst Feifei Li said in an e-mailed report. In 2016, buying may average about 17.9 tons a month, or 215 tons over the full year, she wrote.
Central banks led by China, Russia and Kazakhstan have been adding bullion to their reserves, helping to support prices that have been lifted this year by increased haven demand amid a global rout in stocks. Annual purchases of more than 200 tons by the PBOC would exceed the entire holdings of all but about 20 countries worldwide, according to data from the World Gold Council.
Spread Risk
“The PBOC will continue to diversify its portfolio,” Wayne Gordon, executive director for commodities and forex at UBS Wealth Management, said in an e-mail. Buying gold helps the central bank to spread risk and reduce volatility, he said.
Asia’s largest economy has expanded its bullion stash by 6.3% since announcing in July a 57% jump since 2009. China holds the fifth-biggest tonnage by country, with about 1 762 tons as of December, according to figures from the PBOC this month. The country is the world’s largest gold miner.
China has been burning through its total forex reserves to reduce yuan volatility after an unexpected devaluation in August. The reserves sank $513 billion last year to $3.33 trillion, the first annual drop since 1992. This year, they are seen tumbling $300 billion, according to a Bloomberg survey.
With China’s recent gold purchases seen as steady, the PBOC wasn’t likely to accelerate the pace too much as that risked boosting prices considerably, raising the PBOC’s costs, Barclays said in the report dated January 27.
“With the total forex reserve still greater than $3 trillion, a 1% increase in allocation to gold would require purchasing close to 1 000 tons,” Li said. “For China, the incentive to speed up gold purchases is limited, as a small gain in portfolio diversification will risk a large disruption in the gold market.”
Source: Mineweb – China’s gold buying to top 200 tons this year, Barclays says
