China Buys More Gold; Reserves Up Nearly 100 Tons on the Year

China Buys More Gold; Reserves Up Nearly 100 Tons on the Year from Schiff Gold

China added another 5.91 tons of gold to its reserves in August, bringing its total official gold purchases on the year to almost 100 tons, according to data released by the People’s Bank of China over the weekend.

It was the ninth straight month of gold purchases for China as it continues efforts to diversify reserves away from the US dollar.

An economist at National Australia Bank told Bloomberg he expected both Russia and China to continue to buy gold, saying trade war restrictions, in the case of China, or sanctions, as with Russia, give “an incentive for these central banks to diversify.”

 Also, with increasing political and economic uncertainty prevailing, gold provides an ideal hedge, and will, therefore, be sought after by central banks globally.”

Only Russia has outpaced the Chines in gold purchases. Through July, the Central Bank of Russia had added 106 tons of gold to its reserves on the year. It bought another 12.2 tons of the yellow metal in July, according to data released by the World Gold Council.

China’s gold purchases, along with the buying spree in other countries, including Russia, are also aimed toward a broader geopolitical objective. These countries want to undermine dollar hegemony and reduce the United States’ ability to weaponize the dollar as a foreign policy tool. As we reported last month, even the mainstream is beginning to pick up on this narrative. As one analyst told Bloomberg in July, “Aside from its attempt to diversify its holdings of dollars, owning more gold reserves is also an important strategy in China’s rise as a superpower.”

In December 2018, the People’s Bank of China announced the first addition of gold to its reserves since 2016. The Chinese have a history of going long periods without officially adding gold to its stores and then suddenly revealing a large increase in its reserves. In 2009, the People’s Bank of China stopped reporting its gold holdings. Then in June 2015, the Chinese central bank suddenly announced its gold hoard had grown by 57%.

For a little more than a year, the PBOC regularly announced additions to its gold reserves. Chinese gold holdings rose another 185 tons over the next 16 months before the bank suddenly went silent again.

During the last gold-buying spree, China was pushing for the inclusion of the yuan in the International Monetary Fund’s benchmark currency basket.

Many analysts believe China holds far more gold than it officially reveals. As Jim Rickards pointed out on Mises Daily back in 2015, many people speculate that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE). Given the political dynamics and the ongoing trade war, it seems unlikely the Chinese suddenly stopped increasing their gold reserves in 2016.

China isn’t alone in buying gold. In total, the world’s central banks accumulated 651.5 tons of gold last year and that trend has continued in 2019. The World Gold Council noted that 2018 marked the highest level of annual net central bank gold purchases since the suspension of dollar convertibility into gold in 1971, and the second-highest annual total on record. According to the World Gold Council, a dozen central banks have increased their gold reserves by at least 1 ton through the first seven months of 2019.

During an interview on RT Boom Bust, Peter Schiff called this a “global gold rush on the part of central banks” in preparation for a dollar crisis.

The days that the dollar is a reserve currency are numbered and the smart central banks are trying to buy as much gold as they can before the number is up.”

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Peter Schiff

Mr. Schiff began his investment career as a financial consultant with Shearson Lehman Brothers, after having earned a degree in finance and accounting from U.C. Berkeley in 1987. A financial professional for more than twenty years, he joined Euro Pacific in 1996 and served as its President until December 2010, when he became CEO. An expert on money, economic theory, and international investing, he is a highly sought after speaker at conferences and symposia around the world. He served as an economic advisor to the 2008 Ron Paul presidential campaign and ran unsuccessfully for the U.S. Senate in Connecticut in 2010.