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China and Russia Still on Gold Buying Spree

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After a brief pause in May, the Chinese and Russian central banks resumed their gold buying spree in June.

The-Peoples-Bank-of-China

The People’s Bank of China added about 15 tons of gold to its stash last month. The Chinese central bank now officially holds about 58.62 million ounces of gold. China has bought gold in 11 of the past 12 months and has increased its hoard about 165 tons over the past year.

A year ago this month, the Chinese central bank announced its gold holdings had grown by 57% to about 1,658 tons. It was the first official update to China’s gold reserves since 2009. Many analysts believe the Chinese actually own more gold than the official numbers indicate – possibly a lot more.

The Chinese resumed their gold buying last month despite surging prices. Zhang Yanxin, an analyst at Shanghai Flow International Trade Co., told Bloomberg he thinks the June numbers signal the country plans to continue growing its gold reserves into the future:

China renewed purchases despite a spike in prices, signaling that the nation is still looking to diversify its foreign exchange reserves in a steady manner.”

Last year, Ken Hoffman, Global Head of Metals & Mining Research with Bloomberg Intelligence, made the case that the Chinese are setting the stage to put the yuan on a gold standard:

They’ve already started to do just that [back the yuan with gold]. They’re laying the groundwork. They’ve built vaults. They’re the world’s biggest buyer of gold. They’ve started a China gold bank two months ago, where they say they’re raising $16.5 billion to buy gold for other central banks to put their gold in China. So they’re doing a lot of the building blocks, so if they wanted to, they could build a gold standard…”

Meanwhile, the Russians also resumed buying gold last month. After adding only 3 tons in May, the Russian central banks bought 18.7 tons of gold in June. The Russians have expanded their hoard by about 84 tons through the half of 2016. The Russian central bank officially holds 1,499 ton of the yellow metal, ranking its gold holdings sixth in the world.

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Last December, Russia announced plans to increase its gold reserves to $500 billion within the next five years. As a Russian publication put it, “Gold is considered to be a buffer against external economic risks and is currently in favor in Russia.”

Yuichi Ikemizu, Tokyo branch manager of ICBC Standard Bank, said the Russians are buying gold to help stabilize their currency:

The ruble has begun appreciating recently. Gold reserves served their purpose by helping to avert a currency crisis.”

Central banks around the world have increased their gold reserves by 2.7% from a year earlier to about 32,800 tons, according to a World Gold Council report published last week.

Many analysts believe Russia and China want to cut their dependence on US dollars and euros. Former Bank of England Gov. Mervyn King said owning gold allows the Chinese and Russians more control over their own financial destinies:

China and other countries do not want to be in a situation where all their international assets are in effect dependent on the US…It is extremely reasonable to have assets in your portfolio that are not dependent on the goodwill of other countries.”

The same holds true for individual investors. Gold has no counter-party risk. In other words, its value and stability don’t depend on empty government promises. The Chinese and Russians understand this. That’s why they’re aggressively buying gold.

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2 thoughts on “China and Russia Still on Gold Buying Spree

  1. Kevin Wallien says:

    Samuel thought you and Peter would find this G-20 report dated July 23-24 very valuable. Like the BIS annual report released the Saturday after Brexit, its summary was quite illuminating. Now the G20 just finished meeting in Chengdu, China and this report comes sandwiched in between the two press consuming Presidential conventions. The wording in the “Executive Summary in the PDF below seem to have cornered the Fed this week into a dovish statement. The whole G -20 report includes some very scary statements. Item 10 & 12 and their bullet points blew me away. I have never seen such open and straightforward policy recommendations after a G20 meeting ever.
    http://www.imf.org/external/np/g20/pdf/2016/072116.pdf

    The only thing that I do not like is the proposal by China for a one world tax in the link below. Maybe an import consumption tax that would greatly benefit the Chinese. The G-20 alludes to it as well in their document.
    http://www.chinadaily.com.cn/business/2016-07/23/content_26194538.htm

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