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China Greenlights Massive Increase in Gold Imports

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China has opened the door to billions of dollars in gold imports.

Reuters cites five sources indicating that Beijing has greenlighted the import of 150 tons of gold valued at around $8.5 billion at current prices. The report notes that China’s sudden appetite for gold could potentially “support global prices.”

China ranks as the world’s gold consumer, but imports plunged during the coronavirus pandemic as local demand for the yellow metal dried up. The Chinese economy rebounded during the second half of 2020, and demand for gold coins, bars and jewelry has recovered.

The People’s Bank of China keeps tight control over how much gold enters the country through a system of quotas granted to commercial banks. A Chinese banker told Reuters that there were no quotas at all for a while.

Reuters called the size of the expected Chinese gold imports a “dramatic return to the global bullion market.” In 2019, China imported about 75 tons of gold per month. Imports plunged in February 2020, falling to about 10 tons per month.

The Reuters report noted that India’s demand for bullion has also rebounded from a pandemic-induced slump, with record-breaking imports in March of 160 tons of gold. Imports of the yellow metal into India have been increasing since the beginning of the year.

India’s central bank has also ramped up gold purchases. The Reserve Bank of India added 11.2 tons to its holdings in March, bringing its total gold reserves to 687.8 tons. It was the highest monthly buying total on record. Last August, there were reports that the board of the Reserve Bank of India (RBI) was considering significantly raising its gold reserves.

Standard Chartered analyst Suki Cooper told Reuters the recovery of gold demand in China and India is “critical in setting the floor for gold” and should stop prices from falling further over the coming months.

It remains unclear if the People’s Bank of China plans to begin boosting its gold reserves again. Through February, the Chinese central banks had not reported any gold purchases in 15 months. The Chinese have a history of going long periods without any official announcement of its gold holding 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%. The Chinese central bank went on a gold-buying spree and then suddenly stopped in late 2019.

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).

ZeroHedge asked an interesting question of the announced surge in gold imports: is this just the next stage in China seeing the writing on the wall for the US dollar as the global reserve currency and paving the way for a gold-backed yuan?

In 2018, the Chinese launched a gold-backed, yuan-denominated oil futures contract.  These contracts were priced in yuan, but convertible to gold, raising the prospect that “the rise of the petroyuan could be the death blow for the dollar.”

Last year, financial analyst Alasdair Macleod speculated that China could escape a collapsing dollar by tying the yuan to gold.

It’s impossible to know China’s political motives. The increase in gold imports could simply be to meet surging consumer demand. Or it could be part of ongoing efforts to distance itself from the dollar. Regardless, if China’s appetite for gold continues to grow, it will likely help support global demand and thus gold prices.

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