China added 19 tons of the shiny metal last month. What does it mean for the gold market?
China continues to hoard gold. In June, it increased its gold reserves by 57 percent. In July, the People's Bank of China bought 19 tons of gold, a 1.1 percent rise on a monthly basis. The previous announcement was bearish for the gold market, as the market had expected much larger purchases during the preceding 6 years. In contrast, the very recent increase was considered as a bullish sign for the yellow metal, as the announcement was rather unexpected. The price of gold rose immediately after the publication.
The question is whether China really bought 19 tons of gold in July, or just said so, to bring the data closer to its true gold holdings? Well, many analysts do not believe in the accuracy of China’s official data. We were skeptical about theories that China deliberately under-reported the size of gold holdings, however, it is true that the July purchases were surprisingly large. In the last 6 years, the country increased its official holdings by 604 tons, which equals to more than 8 tons purchased per month. Now, the PBOC bought more than twice as much. It does not, however, have to mean anything special, as China could simply take advantage of low prices. We do not know if China was buying gold in a slow and steady way in 2009-2015, or in batches, only during the periods of declining prices.
Anyhow, the increase is good news for the gold market. Although the central banks’ purchases probably do not drive the price of gold, the last PBOC’s move could improve the market sentiment toward gold. It looks like China want to increase its transparency in order to push for the yuan’s inclusion in the IMF’s currency basket. The increased transparency is always good news for the gold market, as it limits the area of speculation, and improves the understanding of the market’s current situation.
The key takeaway is that China increased its official gold reserves by 19 tons in July. It was more than double the net monthly average that was bought between 2009 and 2015, however, one month is not enough to conclude anything with certainty. The PBOC could simply take advantage of low prices. The announcement is good news for the gold market, as it may improve the market sentiment.
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Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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