China Paused Monthly Gold Purchases in May After Prices Surged

Beijing (Jun 7)  China, the world’s biggest producer and consumer of gold, took a break from adding bullion to reserves in May after prices soared 22 percent in the first four months of the year.

The People’s Bank of China kept assets unchanged after boosting them for 10 straight months through April following the disclosure of a 57 percent increase since 2009. Holdings had expanded 9 percent since the start of July to 58.14 million ounces or about 1,808 metric tons, according to central bank data.

After its best start to the year since 1986, bullion was volatile in May, rising above $1,300 an ounce for a short while before dropping briefly below $1,200, amid changing expectations over the timing of the next Federal Reserve increase in interest rates. Overall, prices now are holding gains of 17 percent this year.

“I wouldn’t read too much into one month of data but higher prices have probably played a role in the slowdown in accumulation,” Simona Gambarini, a commodities economist at Capital Economics Ltd. in London, said by e-mail. “That said, the case for reserve diversification away from the dollar remains strong. With around a third of global government debt yielding negative interest rates, gold remains a valuable alternative.”

Bullion demand from central banks and investors may be structurally higher as a result of negative interest rates in a number of countries, the World Gold Council said in a March 31 report. Nations are expected to buy 400 tons to 600 tons of gold this year, compared with 566.3 tons in 2015, Alistair Hewitt, head of market intelligence, said last month. Russia and Kazakhstan are among those steadily expanding holdings.

While some people say the Chinese central bank shouldn’t hoard too much gold because the metal yields nothing and takes up liquidity, there’s no sign that the authorities are sympathetic to that school of thought, Jiang Shu, chief analyst at Shandong Gold Financial Holdings Capital Management Co., said by phone from Shanghai.

Source: Bloomberg