Back in January, China’s State Administration of Foreign Exchange (SAFE) announced that China had added 30 metric tonnes to its official gold reserves in December 2022, on top of a prior an addition of 32 metric tonnes in November 2022. This is a significant amount of 62 metric tonnes in just the last 2 months of the year 2022.
So, why is China buying all this gold? China clearly wants to move away from US dollar reserves because the U.S. has used financial sanctions to freeze assets including central bank reserves of Russia, Syria, Iran, North Korea, Venezuela, and others. Countries like China, Brazil, and India are moving away from dollars for fear that they will be next on the sanctions list. Physical gold in secure custody cannot be frozen or seized or digitally banned.
China’s announcement comes just after Russia announced it had doubled the ceiling on permitted gold holdings of its sovereign wealth fund from 20% to 40%. This can create demand for perhaps 100 metric tonnes over the coming year. If China continues to add 30 metric tonnes to its reserves on a regular basis at the same time that Russia is out to buy 100 metric tonnes, it will put a floor under the gold price.
It’s not too late for the smart investors to buy some gold.
Sven Franssen