Chinese Data Point Toward Further Gold Purchases During August

By  Paul Ploumis 09 Sep 2015  Last updated at  03:42:21 GMT

(Kitco News) - Chinese data on foreign-exchange reserves suggest that the country’s central bank bought another 16 tonnes of gold during August, analysts report.

A portion of report on the country’s official foreign-exchange reserves Monday said the value of gold holdings rose to $61.8 billion at the end of August from $59.24 billion at the end of July.

“Based on the gold price figures for the end of July and the end of August, this points to PBOC gold purchases of a good 16 tonnes last month,” said analysts at Commerzbank in their daily commodities report Tuesday.

This comes after an increase of around 19 tonnes in July, pointed out Commerzbank and UBS.

In mid-July, the country ended six years of market conjecture about its gold holdings when officials announced its reserves were 1,658 tonnes. This was a nearly 60% jump from the last time the country had reported its reserves back in 2009.

Now, the central bank has provided a second consecutive monthly update since authorities said they would follow the International Monetary Fund’s reporting system on state reserves, analysts said.

“While it had been a widely held view that China was buying gold over the past several years, it was only when the PBOC revealed its holdings three months ago that the market got confirmation,” UBS said. “The large increase in gold reserves suggests that purchases were made over a prolonged period, but the data does not really provide much insight as to when the buying actually occurred. The current system of more frequent updates on China's official gold holdings is therefore a welcome development as it provides a bit more transparency to the market.”

On balance, the growth in Chinese gold reserves is positive for the gold market, UBS continued. This acts as confirmation of the value the central bank attaches to gold as an asset, UBS said. Perhaps even more meaningful, analysts continued, is that the dollar value of the country’s gold holdings rose even though overall foreign-exchange reserves declined by $93.6 billion in August as the central bank intervened in the marketplace to keep its currency from weakening too much after authorities devalued the yuan.

Normally, under such circumstances, a central bank can be expected to “err on the side of liquidity” and stay overweight in U.S. dollar cash equivalents at the expense of lower-liquidity assets, UBS said. But in this case, “gold accumulation is progressing independently of changes in the reserve base,” UBS said.

Courtesy: Kitco News