Central banks around the world have acquired more gold during the first part of 2019 than they have since 1971. As we reported two weeks ago in reference to a study published by the World Gold Council, over 20 central banks bought gold in the last year with 224.4t purchased in 2019 Q2, bringing the total for the first half of 2019 to 369.9t.
Buyers were diverse, many were from emerging economies, some were new to gold and others had previously been dormant in the gold market for several years. This growing demand for gold as a reserve asset was largely seen as a response to the current global political and economic climate.
Most notably, China has played a key role in this gold buying spree. China has been and continues to be a major buyer in the global gold market. As of June 2019, the country has added to its gold reserves for 7 months in a row, as the People’s Bank of China announced in July 2019 an additional 10.3t to its gold reserves, following a 74t inflow since December 2018.
Why is this relevant? The Chinese government is embroiled in an accelerating trade war with America. It is therefore one of the two superpowers that have the most influence over what lies ahead. Clearly, the Chinese government and the Chinese central bank (which in the case of China are pretty much one and the same) expect a bumpy ride ahead and are intent on diversifying a growing portion of the country’s reserves into gold.
It is also noteworthy that so far only roughly 2.8% (according to IIF data) of Chinese FX reserves are held in gold. Thus, there is much room to expand their gold stockpiles in the coming months and the Chinese certainly seem determined to continue their buying binge.