China’s Pause in Gold Purchases: What it Means for the Market

China’s Central Bank Halts Purchases of Gold Due to High Prices

China’s Pause in Gold Purchases: What it Means for the Market

The recent surge in gold prices has caused concern among investors, as it appears that the demand for the precious metal may be affected. Official data released on Friday revealed that China’s gold reserves remained unchanged in May, indicating that the central bank did not purchase any gold.

This decision by the People’s Bank of China (PBOC) to halt purchases has made gold more susceptible to further decreases in value. According to Ewa Manthey, a commodities strategist at ING Bank, gold prices have been on a steady rise this year, increasing by about 11% year-to-date due to various geopolitical uncertainties globally. In China, individuals have been increasing their gold holdings as a hedge against economic instabilities and a weakening Chinese yuan. However, the recent surge in gold prices may affect the demand for gold temporarily.

The PBOC had been purchasing gold for 18 consecutive months before pausing last month, becoming the world’s largest institutional buyer. Despite this pause, China remains the world’s second-largest consumer of gold after India. In 2023, China purchased 225 tons of gold, with Poland coming in second at 130 tons. David Tait, CEO of the World Gold Council, mentioned to Reuters on Monday that China is currently observing the market and may resume purchases if gold prices correct to around $2,200 per ounce.

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