Analysts Predict China’s Central Bank Will Resume Gold Buying as Prices Decline

China, the world’s largest official sector buyer of gold, is anticipated to restart its gold acquisition once prices decline from the record highs reached in May, industry experts stated at a recent conference.

After increasing its gold reserves for 18 consecutive months, official data from the People’s Bank of China (PBOC) indicated that holdings remained unchanged in May, causing a significant drop in global spot prices on Friday.

“China’s data did show a pause,” David Tait, CEO of the World Gold Council, told Reuters at the Asia Pacific Precious Metals Conference in Singapore. “They are just waiting and watching. If prices correct to the $2,200 per ounce level, they will resume again.”

Benchmark spot gold traded around $2,300 per ounce on Monday after experiencing its largest daily drop in 3.5 years following the release of China’s holdings data. The market had hit a record high of $2,449.89 per ounce on May 20, driven by interest rate cut expectations and strong central bank buying fueled by geopolitical tensions.

The PBOC regulates the amount of gold entering China through quotas to commercial banks. It was the largest official sector buyer of gold in 2023, with net purchases of 7.23 million ounces, or 224.9 metric tons, according to the World Gold Council—the highest annual total since at least 1977. In April, China’s central bank added 60,000 troy ounces to its reserves.

A survey by the Official Monetary and Financial Institutions Forum indicated that central banks plan to increase their gold exposure over the next 12-24 months.

“Central banks are buying gold, and China is the main buyer. Sentiment on gold is bullish because of geopolitical tensions and elections. China is expected to buy more,” said KL Yap, chairman of the Singapore Bullion Market Association.

Gold has long been considered a hedge against geopolitical and economic risks, and it remains a favored investment in China amid ongoing economic concerns and a weaker yuan.

“The fact that China’s gold buying was minimal in April and zero in May does not imply that they won’t resume reporting again,” said StoneX analyst Rhona O’Connell.

In April, the Shanghai Gold Exchange raised margin requirements for some gold futures contracts to 9% from 8% after prices surged to historical highs.