CHINA’S central bank did not buy any gold last month, ending a massive buying spree that ran for 18 months and helped push the precious metal to a record high in May.
Spot prices for gold fell 1.5 per cent after the People’s Bank of China said its bullion holdings were unchanged at the end of May. The bank had been stocking up its reserves since November 2022, leading a flurry of purchases by the world’s central banks amid rising geopolitical tensions.
“My initial thought is that China, a major drive of the gold rally in the past year, is nowhere near done buying gold,” Ole Hansen, head of commodity strategy at Saxo Bank, said in an emailed note. The pause shows that they are baulking at the prospect of paying record-high prices.
Gold soared to an all-time high above US$2,450 an ounce in May, supported by strong central bank buying. The PBOC’s demand for bullion has come as the world’s second-biggest economy seeks to diversify its reserves and guard against currency depreciation.
First-quarter purchases by the world’s public institutions were at record levels, with China the biggest buyer, according to the World Gold Council. The PBOC held its gold holdings at 72.80 million troy ounces in May, which was up from 62.64 million troy ounces before the long stretch of purchases.
Fading appetite
There had been signs that China’s demand was cooling as higher prices took their toll. In April, the PBOC bought only 60,000 troy ounces, down from 160,000 ounces in March, and 390,000 ounces in February. The country’s imports in April, meanwhile, slipped 30 per cent from the previous month.
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The risk for gold bulls is that China’s voracious appetite for bullion has left the precious metal vulnerable to any potential shift in demand.
The initial price reaction “looks a bit technical,” said Nicholas Frappell, global head of institutional markets at ABC Refinery in Sydney.
“It would be surprising if the announcement represents anything other than a pause in the general trend of ongoing official sector demand.”
Spot gold was trading at US$2,341.40 an ounce by 10:36 am London time, down 1.5 per cent on the previous close. BLOOMBERG
