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China’s Central Bank Expected to Resume Gold Buying as Prices Ease, Analysts Suggest

China, renowned as the largest official sector buyer of gold, is anticipated to recommence its acquisitions of bullion once prices retreat from the record highs observed in May. Despite a temporary pause in its gold purchases as reported by official data from the People’s Bank of China (PBOC) in May, industry insiders at a recent conference indicated that the fundamental case for gold remains robust.

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David Tait, CEO of the World Gold Council (WGC), highlighted that China’s stance is that of cautious observation, waiting for a suitable price point to resume its acquisitions. He mentioned that if gold prices correct to around $2,200 per ounce, China is likely to resume its buying spree.

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Following the release of China’s unchanged gold holdings data for May, global spot prices experienced a sharp decline, trading around $2,300 per ounce on Monday. This drop came after gold reached a record high of $2,449.89 per ounce on May 20, driven by expectations of interest rate cuts and robust central bank purchases amid geopolitical tensions.

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The PBOC, which controls the inflow of gold into China through quotas to commercial banks, has consistently increased its gold reserves. In 2023, it emerged as the largest official sector buyer of gold, with net purchases of 7.23 million ounces or 224.9 metric tons, marking the highest figure since at least 1977.

Furthermore, a survey conducted by the Official Monetary and Financial Institutions Forum revealed that central banks intend to augment their exposure to gold in the coming 12-24 months, with China anticipated to lead this trend.

KL Yap, chairman of the Singapore Bullion Market Association, emphasized that central banks, particularly China, are expected to intensify their gold acquisitions amid bullish sentiment fueled by geopolitical tensions and electoral uncertainties.

While China’s gold buying was minimal in April and non-existent in May, analysts like StoneX’s Rhona O’Connell stress that this should not be interpreted as a long-term cessation. O’Connell noted that China is likely to resume its reporting of gold purchases, especially considering the historical significance of gold as a hedge against economic and geopolitical risks.

In response to climbing gold prices in April, the Shanghai Gold Exchange raised margin requirements for certain gold futures contracts, underscoring the market’s sensitivity to price fluctuations.

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