China is leading a ‘voracious’ gold-buying spree as central banks try to shrink dollar reserves

• Central banks are buying a lot of gold, and China is leading the pack, the World Gold Council said.

• The move is part of a broad shift away from dollar reserves but is also stoked by inflation and economic uncertainty.

• The annual total of gold purchases by central could surpass a record set last year, the Council said.

Central banks around the world are on a gold-buying spree, and China is outpacing them all.

The bullion binge comes as part of a broad effort this year of countries trying to diversify reserves away from the dollar, as well as attempts by some nations to de-dollarize trade relationships by conducting transactions in local currencies.

“With central bank demand resuming its voracious pace after a slower Q2, we expect the annual total to approach last year’s record, and there’s an outside possibility it will exceed that figure,” the World Gold Council wrote in its third-quarter report on the market for the precious metal.

According to the Council, central banks have bought 800 tonnes of gold so far this year, up 14% from last year at this point. A whopping 181 tonnes out of that total comes from China alone. The country’s central bank holds a total of 2,192 tonnes.

The total amount purchased by central banks last quarter is the highest in 2023 amid an already booming year for gold buying.

Demand for the yellow metal has been rising as central banks attempt to diversify their reserves away from the US dollar. This trend, along with some countries trying to de-dollarize their trade relationships, has resulted in a broad push away from the greenback in 2023.

Since the US leveraged the strength of the dollar to slam Russia with sanctions, lock its banks out of the SWIFT system, and freeze billions in foreign reserves after the country invaded Ukraine, many countries have taken notice and tried to shift their economies away from reliance on the US currency.

China has been a proponent of de-dollarization, ramping up currency swaps and non-dollar agreements with other countries. Beijing has also been slashing its holdings of US Treasurys.

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But the appetite for gold goes beyond a geopolitical maneuvers to dethrone the dollar. The bullion is typically viewed as a safe haven asset because it maintains its value in the long run. So investors stockpile gold during times of uncertainty — like during recessions or wars — to protect themselves against inflation or depreciating currencies.

Take China, whose rush towards gold is also being driven by domestic turbulence as the yuan, the real estate sector, and the stock market are all being sapped by a slowing economy.

And this year, many currencies have withered in the face of rocketing global inflation, which is also boosting the demand for gold.

More recently, the conflict in the Middle East that has lifted gold prices by 10% in little over two weeks. Spot gold prices momentarily breached $2,000 per ounce on Friday, the highest level since mid-May.

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