[agency Review] what is the intention of the central bank to increase its gold holdings for seven months in a row? Comments on official Foreign Exchange reserves in June 2019-Shanghai Metals Market

Hot Keywords

  • Nickel market
  • Market commentary
  • Silicon
  • zinc
  • Aluminium
  • Inventory data
  • Copper
  • Zinc
  • Production data
  • Nickel
  • Sales data
  • Morning comments
  • Silicon metal
  • Nickel pig iron
  • Futures movement

[agency Review] what is the intention of the central bank to increase its gold holdings for seven months in a row? Comments on official Foreign Exchange reserves in June 2019

Translation 05:25:33PM Jul 08, 2019 Source:Huatai macro
The content below was translated by Tencent automatically for reference.

SMM News: in June 2019, China's official foreign exchange reserves totaled US $3.119234 trillion, an increase of US $18.23 billion from the previous month. We believe that the positive growth of foreign reserves in June is mainly affected by valuation factors, and it is expected that the short-term RMB will continue to fluctuate and appreciate, which is conducive to stabilizing the balance of payments. China has always responded to trade frictions with the attitude of reform and opening up. We believe that as long as the reform and opening up continues, the process of dominant factors of production in China will inevitably lead to the appreciation of RMB, and the appreciation of RMB exchange rate and capital inflow will strengthen each other in the next few years. It will bring about the revaluation of the value of China's core risky assets. Gold reserves stood at 61.94 million ounces at the end of June, and the central bank increased its holdings of gold for seven months in a row. We believe that three logic supports gold prices: a weaker dollar, increased volatility in the international political and economic environment, and falling real interest rates. We adhere to the view that gold is higher in the medium to long term.

In June, foreign reserves maintained positive growth and the balance of payments maintained a basic balance.

Central bank data show that in June 2019, China's official foreign exchange reserves totaled US $3.119234 trillion, an increase of US $18.23 billion from a month earlier, maintaining a positive growth, and China's balance of payments maintained a basic balance; the official foreign exchange reserves of 2.243712 trillion SDR, in June SDR decreased by 7.276 billion SDR compared with the previous month. We believe that the positive growth of foreign reserves in June is mainly affected by valuation factors, and it is expected that the RMB will continue to fluctuate and appreciate in the short term, which is conducive to stabilizing the balance of payments.

Official foreign exchange reserves are mainly affected by valuation factors in June

In June, the dollar index fell 1.61 per cent from 97.77 at the end of May to 96.19 at the end of the month; the euro rose 1.83 per cent against the dollar from 1.1168 at the end of May to 1.1372 at the end of the month; and the dollar rose 0.55 per cent against the yen to 107.84 at the end of the month from 108.43 at the end of May. Our model estimates that exchange rate movements have an impact on reserves of more than $15 billion. Affected by the downward impact of US bond yields, bond yield valuation has a greater impact. The June five-year US Treasury yield fell 17BP to 1.76 per cent. The five-year German Bunds fell 7BP to-0.66 per cent, while the five-year Treasury 6BP fell to-0.26 per cent. Global bond yields have an impact on reserve valuations of about $16 billion. Taking into account the positive impact of changes in exchange rates and bond yields on external reserve valuations, the positive growth of foreign reserves in June was mainly due to valuation factors and was also more in line with expectations.

The central bank has increased its holdings of gold for seven months in a row, and we adhere to the view that gold has been higher for a long time.

Gold reserves stood at 61.94 million ounces at the end of June, up 330000 ounces from a month earlier, and the central bank increased its holdings for the seventh month in a row. We believe that the increase in gold holdings of central bank reserve assets is not only due to the consideration of optimal allocation, but also reflects the expectation of medium-and long-term appreciation of gold. In fact, a number of economies have recently increased their holdings of gold. Since our annual strategy report at the end of last year, we have been firmly optimistic about the allocation value of gold in 2019. We believe that three logics support the upward movement of gold prices:

1. The US dollar enters the downward channel of the big cycle and is good for gold;

2. The fluctuation of international political and economic environment increases, which is good for gold;

3. The decline in real interest rates is good for gold. Since the beginning of this year, the trend of gold has continued to test our judgment, and we adhere to the view that gold has been higher for a long time.

It is expected that the RMB exchange rate will continue to fluctuate and appreciate in the short term.

The core of the recent RMB exchange rate trend is driven by policies and events, affected by the easing of trade frictions between China and the United States after the G20 summit, short-term fluctuations and appreciation of the RMB, we believe that the follow-up is still sustainable, but the progress of trade negotiations still needs to be closely followed. In order to deal with trade frictions with openness, the long-term appreciation of RMB will bring about the revaluation of China's core risky assets.

China has been dealing with the trade friction between China and the United States with the attitude of reform and opening up. China has taken five measures to continuously promote the process of opening up to the outside world, such as revising the negative list, establishing a free trade port, expanding the free trade area, opening wider the financial and service industries to the outside world, and expanding the opening up of the mining industry in the agricultural manufacturing industry. We believe that as long as the reform and opening up continues to advance, the process of dominant factors of production in China will inevitably lead to the appreciation of the RMB. In the next few years, the RMB exchange rate should be the most concerned in the logic of the revaluation of RMB core risky assets. With the medium-and long-term weakness of the US dollar, the appreciation of RMB exchange rate and capital inflow will strengthen each other, which will bring about the revaluation of core risk assets in China.

Risk hint: the fundamentals of China's economy have exceeded expectations, and the follow-up of trade negotiations is not smooth, resulting in the pressure of phased devaluation of the RMB exchange rate.

[agency Review] what is the intention of the central bank to increase its gold holdings for seven months in a row? Comments on official Foreign Exchange reserves in June 2019

Translation 05:25:33PM Jul 08, 2019 Source:Huatai macro
The content below was translated by Tencent automatically for reference.

SMM News: in June 2019, China's official foreign exchange reserves totaled US $3.119234 trillion, an increase of US $18.23 billion from the previous month. We believe that the positive growth of foreign reserves in June is mainly affected by valuation factors, and it is expected that the short-term RMB will continue to fluctuate and appreciate, which is conducive to stabilizing the balance of payments. China has always responded to trade frictions with the attitude of reform and opening up. We believe that as long as the reform and opening up continues, the process of dominant factors of production in China will inevitably lead to the appreciation of RMB, and the appreciation of RMB exchange rate and capital inflow will strengthen each other in the next few years. It will bring about the revaluation of the value of China's core risky assets. Gold reserves stood at 61.94 million ounces at the end of June, and the central bank increased its holdings of gold for seven months in a row. We believe that three logic supports gold prices: a weaker dollar, increased volatility in the international political and economic environment, and falling real interest rates. We adhere to the view that gold is higher in the medium to long term.

In June, foreign reserves maintained positive growth and the balance of payments maintained a basic balance.

Central bank data show that in June 2019, China's official foreign exchange reserves totaled US $3.119234 trillion, an increase of US $18.23 billion from a month earlier, maintaining a positive growth, and China's balance of payments maintained a basic balance; the official foreign exchange reserves of 2.243712 trillion SDR, in June SDR decreased by 7.276 billion SDR compared with the previous month. We believe that the positive growth of foreign reserves in June is mainly affected by valuation factors, and it is expected that the RMB will continue to fluctuate and appreciate in the short term, which is conducive to stabilizing the balance of payments.

Official foreign exchange reserves are mainly affected by valuation factors in June

In June, the dollar index fell 1.61 per cent from 97.77 at the end of May to 96.19 at the end of the month; the euro rose 1.83 per cent against the dollar from 1.1168 at the end of May to 1.1372 at the end of the month; and the dollar rose 0.55 per cent against the yen to 107.84 at the end of the month from 108.43 at the end of May. Our model estimates that exchange rate movements have an impact on reserves of more than $15 billion. Affected by the downward impact of US bond yields, bond yield valuation has a greater impact. The June five-year US Treasury yield fell 17BP to 1.76 per cent. The five-year German Bunds fell 7BP to-0.66 per cent, while the five-year Treasury 6BP fell to-0.26 per cent. Global bond yields have an impact on reserve valuations of about $16 billion. Taking into account the positive impact of changes in exchange rates and bond yields on external reserve valuations, the positive growth of foreign reserves in June was mainly due to valuation factors and was also more in line with expectations.

The central bank has increased its holdings of gold for seven months in a row, and we adhere to the view that gold has been higher for a long time.

Gold reserves stood at 61.94 million ounces at the end of June, up 330000 ounces from a month earlier, and the central bank increased its holdings for the seventh month in a row. We believe that the increase in gold holdings of central bank reserve assets is not only due to the consideration of optimal allocation, but also reflects the expectation of medium-and long-term appreciation of gold. In fact, a number of economies have recently increased their holdings of gold. Since our annual strategy report at the end of last year, we have been firmly optimistic about the allocation value of gold in 2019. We believe that three logics support the upward movement of gold prices:

1. The US dollar enters the downward channel of the big cycle and is good for gold;

2. The fluctuation of international political and economic environment increases, which is good for gold;

3. The decline in real interest rates is good for gold. Since the beginning of this year, the trend of gold has continued to test our judgment, and we adhere to the view that gold has been higher for a long time.

It is expected that the RMB exchange rate will continue to fluctuate and appreciate in the short term.

The core of the recent RMB exchange rate trend is driven by policies and events, affected by the easing of trade frictions between China and the United States after the G20 summit, short-term fluctuations and appreciation of the RMB, we believe that the follow-up is still sustainable, but the progress of trade negotiations still needs to be closely followed. In order to deal with trade frictions with openness, the long-term appreciation of RMB will bring about the revaluation of China's core risky assets.

China has been dealing with the trade friction between China and the United States with the attitude of reform and opening up. China has taken five measures to continuously promote the process of opening up to the outside world, such as revising the negative list, establishing a free trade port, expanding the free trade area, opening wider the financial and service industries to the outside world, and expanding the opening up of the mining industry in the agricultural manufacturing industry. We believe that as long as the reform and opening up continues to advance, the process of dominant factors of production in China will inevitably lead to the appreciation of the RMB. In the next few years, the RMB exchange rate should be the most concerned in the logic of the revaluation of RMB core risky assets. With the medium-and long-term weakness of the US dollar, the appreciation of RMB exchange rate and capital inflow will strengthen each other, which will bring about the revaluation of core risk assets in China.

Risk hint: the fundamentals of China's economy have exceeded expectations, and the follow-up of trade negotiations is not smooth, resulting in the pressure of phased devaluation of the RMB exchange rate.