China’s Gold Buying Spree Hits the Brakes

China has again put its physical gold buying cart away for a third month according to recent reports. The People’s Bank of China (PBOC) has not altered its gold reserves in July, still stuck at 72.8 million troy ounces for the second month running. This marks a huge departure from the purchasing spree over an 18-month period, which had gold bulls foaming at the mouth.

Why the Sudden Cold Feet?

Apparently, gold has become simply too expensive. The metal has been on a tear, setting an all-time high in July. This might have investors dancing in the streets, but it is reportedly causing central banks like China’s to pause.

This is not only true for China. In June, Singapore raised eyebrows by reducing its gold reserves to a 16-year low, marking the largest reduction in over two decades. The World Gold Council concurred, observing that overall central-bank demand tanked 39% in Q2 from the previous quarter.

But Hold your Horses

Don’t totally discount a return to central-bank demand. Some market watchers are starting to hear bullish whispers. They contend that the PBOC is probably just taking a breather in its shopping sprees. China could get back into the game, driven by a desire to make its currency more stable.

Back on Main Street

For the average Chinese, as central banks pull back their purse strings, gold is taking on a whole new meaning. Yes, high prices have discouraged frivolous purchases like gold jewelry, but physical gold bars and coins are selling faster than breakfast muffins.

As the economy continues to sputter in China, it appears that Chinese investors are turning to these lustrous tokens as a safe haven for their money. The World Gold Council reports that family offices in Asia joined ETF investors to drive gold buying above 1 ton per day in July, making it the best second quarter for demand by weight in the last 3 years.

The Bigger Picture

So, what is fueling gold’s stratospheric rise? Just ask Uncle Sam. Traders are betting big that the Federal Reserve will cut back on its monetary easing, further pressuring the dollar and benefiting gold as a safe haven.

What’s Next?

As with everything in finance, the future is as unpredictable as a round of Mah-jong. Will China return to buying gold? If prices keep moving higher, or are we headed for a correction?

What is certain, whether you are a central banker or just someone who wants to stash some cash under the mattress, is that gold remains a key player. Keep an eye on this space—nothing in the world of precious metals is written in stone!

Acknowledgment: This article was inspired by and includes information from "China’s PBOC Keeps Gold Buying on Hold as Prices Hit Record" published on Bloomberg.com. For more detailed insights, you can read the full article here.