(Yicai) May 8 — China increased its gold reserves for the 18th consecutive month in April, as the country accelerated its purchase of the precious metal after international prices retreated.
The People’s Bank of China held 74.6 million ounces of gold worth about USD344.2 billion as of April 30, up by 260,000 ounces from a month earlier, the State Administration of Foreign Exchange announced yesterday. Last month’s increase is much larger than those of 160,000 ounces in March, 30,000 ounces in February, and 40,000 ounces in January.
The decline in international gold prices over the past two months, mainly because the Middle East crisis drove up oil prices and cooled global monetary expectations, including those for rate cuts by the US Federal Reserve, may be the direct reason behind the central bank’s acceleration in gold purchases, Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, told Yicai.
After breaking through USD5,400 per ounce and reaching a historic high in early March, the spot gold price experienced a pullback of 12 percent in March and fell an additional 1 percent in April. In the past two trading days, it rebounded and is now around USD4,700 per ounce.
Despite recent fluctuations in gold prices, the precious metal’s status as a core reserve asset for central banks remains solid. According to the latest statistics from the World Gold Council, global central banks raised their gold reserves by a total of 244 tons in the first quarter of this year, higher than the increase in the fourth quarter of last year and the five-year average.
Gold is widely accepted as the ultimate means of payment globally. The PBOC hiking its gold reserves can enhance the credibility of its sovereign currency and create favorable conditions for promoting the internationalization of the Chinese yuan, Wang believes. The continued accumulation of gold by the PBOC is likely to remain a major trend in the future.
China’s foreign exchange reserves rose by 2.1 percent, or USD68.4 billion, to USD3.4105 trillion as of April 30 from March 31, marking the largest increase in 28 months, SAFE data also showed.
The rapid growth of forex reserves is primarily due to the weakening of the US dollar in April, which led to the appreciation of non-US dollar assets within the reserves, Wang said. The gradual desensitization of the financial markets to the Middle East situation and the general rise in global financial asset prices have also contributed, he added.
China’s forex reserves are expected to remain relatively stable around USD3 trillion in the future, Wang forecast. Against the backdrop of increasing fluctuations in external political and economic environments, ample forex reserves can provide great support for maintaining the Chinese yuan exchange rate at a reasonable and balanced level, he noted.
Editors: Dou Shicong, Futura Costaglione