CHINA January 29 2016 8:45 AM
LONDON (Scrap Register): Barclays looks for gold purchases by China’s central bank to continue at a similar monthly pace as seen last year, estimating buying for 2016 to come in around 215 tons.
Meanwhile, Barclays looks for Chinese jewelry demand and purchases of coin and bars to rise. However, analysts said the biggest jolt China could provide to the gold market in 2016 could be further weakness in equities that might trigger safe-haven buying of the yellow metal, or vice-versa.
China began publishing its official gold reserve levels on a monthly basis last summer. Previously, authorities were secretive about their purchases, announcing them once every several years.
Since June, monthly purchases by the People’s Bank of China have averaged between 14 and 22 tons, Barclays said.
Barclays believes China’s gold reserve purchases are strategic and long term.
However, China also has a large amount of forex reserves, Barclays continued.
“With the total FX reserve still greater than $3 trillion, a 1% increase in allocation to gold would require purchasing close to 1,000 tons,” Barclays said. “Thus, for China, the incentive to speed up gold purchases is limited, as a small gain in portfolio diversification will risk a large disruption in the gold market and increase the cost of purchase considerably.
Barclays expects the pace of PBOC gold purchases in 2016 to remain similar to 2015, totaling 215
tons, or 17.9 tons a month.
China is a key nation for the gold market, recognized as the largest producer, plus with India one of the two largest consumers. Barclays said it looks for China’s overall gold demand to grow in 2016 but only reach 2012 levels. Mine supply is expected to continue rising.
“We believe the most important risk for gold emanating from China is the macro outlook and its influence on risk asset pricing and interest rates,” said analysts at Barclays. “If a hard landing scenario for China were to materialize, it would likely spur safe-haven demand, and could potentially prompt the Fed to reverse its tightening policy.”