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China Anticipated to Resume Gold Purchases as Prices Stabilize, Analysts Predict

Industry experts suggest that China, known as the largest official buyer of gold, is poised to resume its acquisition of bullion once prices retreat from the peak levels seen in May. This observation comes as a nod to the enduring fundamental appeal of the metal, as outlined during discussions at a recent conference.

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Despite China’s official data from the People’s Bank of China (PBOC) indicating a halt in gold reserve accumulation in May following 18 consecutive months of additions, sentiment within the industry remains optimistic. David Tait, CEO of the World Gold Council (WGC), noted during the Asia Pacific Precious Metals Conference in Singapore that while China exhibited a temporary pause, it is likely to resume purchases when prices dip, possibly around the $2,200 per ounce mark.

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Following the release of China’s holdings data, global spot gold prices experienced a notable decline, settling around $2,300 per ounce on Monday after registering its most significant daily drop in 3-1/2 years. Notably, the market reached a historic high of $2,449.89 per ounce on May 20, buoyed by expectations of interest rate cuts and robust central bank acquisitions amidst geopolitical tensions.

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The PBOC, which regulates the inflow of gold into China through quotas allocated to commercial banks, has wielded considerable influence in the gold market. In 2023, it emerged as the leading official sector buyer globally, with net purchases totaling 7.23 million ounces or 224.9 metric tons, marking the highest annual volume since records began in 1977. In April alone, the central bank added 60,000 troy ounces of gold to its reserves.

A survey conducted by the Official Monetary and Financial Institutions Forum underscored the ongoing commitment of central banks to bolster their exposure to gold over the next 12-24 months. KL Yap, chairman of the Singapore Bullion Market Association, highlighted the prevailing bullish sentiment towards gold, attributing it to geopolitical tensions and upcoming elections, while also anticipating increased gold purchases from China.

Gold’s historical reputation as a hedge against geopolitical and economic uncertainties has made it an attractive investment avenue in China, particularly amidst concerns regarding the economy and a depreciating yuan. Rhona O’Connell, an analyst at StoneX, emphasized that China’s minimal gold acquisitions in April and the reported zero purchases in May should not be misconstrued as a long-term shift, hinting at the potential for renewed buying activity.

In response to surging prices, the Shanghai Gold Exchange adjusted margin requirements for select gold futures contracts in April, underscoring efforts to manage market volatility amidst historic price levels.

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