Down The Yellow Brick Road: China Buying Gold And Dumping Dollar Assets as Trade War with US Escalates
The comments below are an edited and abridged synopsis of an article by RT.com
Gold has rallied to 6-year highs and continues to post gains. China boosting its gold stockpile, and shifting away from the US dollar, has added to the precious metal’s resurgence.
The People’s Bank of China has purchased more than 70 tons of gold since December, according to the World Gold Council (WGC). Before that, the Chinese central bank had not reported an increase in gold reserves for more than 2 years, and the official figures remained unchanged from October 2016 to November 2018.
The increased gold purchasing by China comes at a time when global central banks are accumulating the precious metal in record numbers. Russia has been the top buyer, adding about 274 tons to its reserves last year. In the first 5 months of 2019, Russia added 78 tons of gold to its coffers, increasing the metal’s share in its reserves by 3.7%.
Central banks’ gold reserves surged by 651.5 tons (74% year-on-year) in 2018, the WGC’s data shows.
Analysts say Beijing was doubling down on gold to diversify its reserves away from the dollar. China has been selling off US Treasuries, with its holdings plunging from a peak of $1.32 trillion in 2013 to about $1.1 trillion in April 2019.
China’s latest boost to its gold holdings comes amid the protracted trade dispute with the US.
“Beijing is worried US-China ties could get worse, so the PBOC has jumped to stockpile its gold reserves,” said Tom McGregor, Beijing-based journalist and political analyst. “Gold is a safe-haven investment,” he added.
Gold has been outperforming most G-10 currencies since the US-China trade war began, Scotiabank commodity strategist Nicky Shiels said. He described the latest rally as a “standalone gold breakout” that excludes the metal’s usual direct correlation with the US dollar.
The US and China have been involved in a trade war since last year. The US has recently increased tariffs to 25% on $200 billions’ worth of Chinese goods. China introduced duties of 25% on 5,000 US products worth $60 billion.