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China resumes buying Gold

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    China resumes buying Gold

    Greetings MM team. Thx for for terrific service & your one-handed market responses where you make a call. (Harry S Truman is quoted as saying he wanted a one-handed economist). Your Tuesday report stated “The resumption of purchases shows that the PBOC is still keen to diversify its reserves and guard against currency depreciation; this policy move could still be in its infancy.” I’m still trying to fully understand how holding gold, denominated in USD, is protecting against currency depreciation. I would appreciate some further clarification and what is the end-game of this process. Many thanks Glenn

    Answer

    Hi Glenn,

    During the first half of 2024, 483 tons of gold were purchased by central banks – China, India and Turkey the most noticeable. China would be buying Gold because their own currency is depreciating, and current/future policy is likely to put further pressure on it. Therefore, they want to diversify away from the depreciating Yuan and hold a better store of value. We were not referring to $US depreciation in this instance, but it’s a valid thought.

    Historically when the $US falls against a basket of currencies, the gold price usually rallies and vice versa. For example, in 2024 the $A has fallen while gold has advanced +31% in $US but +40% in $A terms.  If Treasury in Australia had wanted to protect against a weakening currency, Gold would have been a great place over the last 12 months to help us maintain purchasing power overseas.

    We often get asked for our preferred path for different markets, in the case of gold we now see a test of $US3000 before a more prolonged period of consolidation, but the trends up and we believe the real value through 2025/6 will be achieved via “buying dips”.

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    Gold Spot ($US/oz)
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