Gold's Rise as a Safe Haven Drives China's 10-Month Streak

China’s central bank continued to bolster its gold reserves in August, marking the 10th consecutive month of purchases. The People’s Bank of China (PBOC) added 60,000 troy ounces to its holdings, bringing the total gold reserves to 74.02 million troy ounces by the end of the month. This is an increase from 73.96 million troy ounces in July, and the value of China’s gold reserves rose to $253.8 billion, up from $243.99 billion the previous month [1]. The proportion of gold to China’s total foreign exchange reserves also rose to 7.6 percent, a new historical high [1].

The ongoing accumulation of gold reflects a broader trend in global reserve management, with central banks increasingly diversifying away from the US dollar. Analysts attribute this to rising geopolitical tensions, policy uncertainties, and the growing volatility of major currencies. According to Guan Tao, global chief economist at Bank of China International, gold has surpassed the euro to become the second-largest international reserve asset after the US dollar [1]. Adrian Ash, head of research at BullionVault, noted that China’s continued accumulation demonstrates confidence in gold as a long-term store of value [2].

Meanwhile, China’s foreign exchange reserves reached $3.322 trillion in August, a 0.9 percent increase from the previous month, marking the highest level since January 2016 [1]. The rise is attributed to the weakening US Dollar Index, driven by expectations of a Federal Reserve rate cut and shifting macroeconomic conditions. The PBOC’s holdings of non-US dollar assets have benefited from this trend, contributing to the overall increase in reserve value. Wang Qing, a macro analyst at Golden Credit Rating International, explained that declining US bond yields and rising global equity indices also supported the growth of China’s foreign reserves [1].

The strengthening of the Chinese yuan, both onshore and offshore, further reflects the improved macroeconomic environment. The yuan’s exchange rate broke out of a low-volatility period in late August, with the onshore yuan hitting a yearly low of 7.126 against the US dollar on August 29. Analysts point to a combination of external and internal factors, including the weak US Dollar Index and the PBOC’s active management of central parity rates, as key contributors to the yuan’s resilience. Citic Securities’ Ming Ming noted that domestic equity market performance and inflows of foreign capital have also played a role in reinforcing confidence in the yuan [1].

Looking ahead, analysts suggest that the PBOC may continue to build its gold reserves, given the ongoing uncertainties in global markets. Gold’s role as a hedge against geopolitical and economic risks remains strong, and with prices continuing to trend upward, central banks are expected to maintain their cautious yet strategic accumulation. Wang Qing emphasized that the move aligns with China’s broader strategy to optimize its international reserve mix and enhance the stability of its financial system [1].

Source:

[1] China's Forex Reserves Jump to 10-Year High in August (https://www.yicaiglobal.com/news/chinas-forex-reserves-jump-to-10-year-high-in-august-gold-holdings-expand-for-10th-straight-months)

[2] China's central bank buys gold in August for 10th ... (https://www.business-standard.com/world-news/china-s-central-bank-buys-gold-in-august-for-10th-consecutive-month-125090700087_1.html)

[3] China's Central Bank Extends Gold Buying Spree to 10 Months (https://finance.yahoo.com/news/china-central-bank-extends-gold-023209944.html)