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More Gold For China

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China added to its official gold reserves for the sixth straight month in May as it continues efforts to minimize exposure to the dollar.

The People’s Bank of China increased its gold reserves by another 15.86 tons last month, according to data released by the bank on Monday. That raises the official Chinese gold reserves to 61.61 million ounces (1925.26 tons).

Since the Chinese central bank started adding gold to its official reserves again last December, it has accumulated more than 73 additional tons of the yellow metal. The nearly 16 tons of gold China added last month ranks as the largest single-month gold purchase in this latest buying spree.

Argonaut Securities (Asia) Ltd. analyst Helen Lau told Bloomberg the increased Chinese gold-buying reflects the government’s “determined diversification” away from dollar assets.

TD Securities global head of commodity strategies Bart Melek reiterated the same point, saying, “It’s a diversification away from the US dollar, particularly given the trade tensions and the potential technology cold war that’s evolving.”

We have to remember that gold is nobody’s liability.”

The Chinese have also started shedding US Treasurys again. China sold off the highest level of US bonds in nearly 2-1/2 years in March. After a four-month pause, the big March sell-off resumed a trend of Chinese Treasury divestment we saw in 2018. China shed nearly $50 billion in US Treasurys last year and dumped American debt for five straight months through October 2019. The Chinese currently hold $1.121 in US debt. That’s the lowest level since May 2017.

In December 2018, the People’s Bank of China announced the first addition of gold to its reserves since 2016. The Chinese have a history of going long periods without officially adding gold to its stores 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%.

For a little more than a year, the PBOC regularly announced additions to its gold reserves. Chinese gold holdings rose another 185 tons over the next 16 months before the bank suddenly went silent again.

During the last gold-buying spree, China was pushing for the inclusion of the yuan in the International Monetary Fund’s benchmark currency basket.

China is among a growing number of central banks buying gold. Globally, central banks continued a gold-buying spree in April that stretches back to last year. During an interview on RT Boom Bust, Peter Schiff called it a “global gold rush on the part of central banks” in preparation for a dollar crisis.

The days that the dollar is a reserve currency are numbered and the smart central banks are trying to buy as much gold as they can before the number is up.”

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). Given the political dynamics and the ongoing trade war, it seems unlikely the Chinese suddenly stopped increasing their gold reserves in 2016.

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