China Adds More Gold; Buying Spree Expected to Continue Through 2016

China added another 19 tons of gold to its reserves in December, continuing a buying spree analysts expect will continue through 2016.

Since announcing its reserves for the first time in six years last summer, the People’s Bank of China (PBOC) has steadily added to its hoard. The PBOC added 14 tons in October, 15 tons in September, 16 tons in August, and 19 tons in July. It accelerated the pace in November, purchasing 21 tons, and continued to buy gold at a steady clip last month.

China has added more than 100 tons of gold to its stash since its July announcement. The country’s offiicial gold reserves stood at 56.66 million ounces at the end of December, according to Reuters:

More purchases by the world’s sixth largest official sector gold holder could lend support to international prices of the precious metal, which are currently near nine-week highs amid a global stock market rout, worries over the Chinese economy and heightened geopolitical tensions.”

Shandong Gold Group chief analyst Shu Jiang told Reuters he expects China to continue adding to its gold stock at a steady pace in the coming months. He said higher prices would not necessarily curb the PBOC’s buying, but lower prices could prompt it to purchase even more gold.

China began reporting its gold holdings last summer as it pushed for inclusion of the yuan in the IMF’s benchmark currency basket. Many analysts believe the sudden transparency of China’s reporting, and the country’s gold buying spree, were part of a strategy to convince the IMF the yuan was worthy of inclusion among the world’s reserve currencies.

China achieved its goal with the yuan’s inclusion the SDR basket in November.

Clearly, there are other factors behind China’s push for gold. According to Reuters, the country is seeking to diversify its currency risks.

Chinese central bankers obviously recognize that gold represents stability. In fact, many analysts believe China has far more gold than it officially reports. There is evidence suggesting China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE). A large gold reserve could set the stage for a longer-term strategy. As Peter Schiff has said, China could eventually un-peg the yuan from the dollar and back its currency with its gold:

I think they are accumulating more and more gold quietly and maybe secretly, because I do think that ultimately that is their intention – to have a gold backed yuan become the predominant currency in the world.”

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