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On July 7, according to data released by the State Administration of Foreign Exchange, as of the end of June 2024, the size of the mainland's foreign exchange reserves was US$3,222.4 billion, a decrease of US$9.7 billion, or 0.30%, from the end of May. The State Administration of Foreign Exchange said that in June 2024, affected by the monetary policies and expectations of major economies, macroeconomic data and other factors, the US dollar index rose, and global financial asset prices rose overall. Factors such as exchange rate translation and asset price changes combined to reduce the scale of foreign exchange reserves in the month.
On the same day, the State Administration of Foreign Exchange's updated official reserve assets showed that in June 2024, China's official gold reserves were 72.8 million ounces, unchanged from the previous month, and the increase in gold reserves has been suspended for two consecutive months.
It is worth noting that in May this year, China's official gold reserves stood at 72.8 million ounces, unchanged from the previous month, which means that the central bank paused its gold reserves in May after increasing its holdings for 18 consecutive months.
Previously, the amount of gold purchased by central banks of many countries has hit a new high for two consecutive years, and the reserves of central banks of many countries are still favored by gold. According to the World Gold Council's recent 2024 Central Bank Gold Reserves Survey, 81% of the 70 global central banks surveyed between 19 February and 30 April this year said their global central bank holdings would increase over the next 12 months, the highest level since the survey was conducted in 2019.
Wang Qing, chief macro analyst of Oriental Jincheng, believes that behind the suspension of gold holdings is the current gold price at a historical high. The central bank appropriately adjusts the pace of increasing holdings, which helps to control costs. From the perspective of continuously optimizing the structure of international reserves and steadily and prudently promoting the internationalization of the RMB, the central bank will increase its holdings of gold in the later period.
Looking back at the development of the mainland gold market from the "central bank suspended the increase in gold holdings for 2 consecutive months":
- Gold reserves
According to the Ministry of Natural Resources, China's gold resources have grown steadily year by year in recent years, and by the end of 2022, China's gold reserves were 3,127.46 tons, exceeding 3,000 tons for the first time, a year-on-year increase of 5.5%.
The regional distribution of gold resources in mainland China is uneven, and it has the characteristics of spatial concentrated distribution. According to the statistics of the Ministry of Natural Resources, the top 10 provinces in mainland China in terms of gold reserves in 2022 are: Shandong, Gansu, Yunnan, Jiangxi, Xinjiang, Inner Mongolia, Henan, Heilongjiang, Tibet and Guizhou, of which Shandong Province's gold reserves far exceed those of other provinces, at 967.9 tons, accounting for 31% of the country's gold reserves.
- Gold production
Judging from the production data, from 2017 to 2021, the mainland gold supply entered a landslide channel, and returned to the upward channel in 2022. According to statistics from the China Gold Association, the output of raw gold in mainland China in 2022 was 372.048 tons, an increase of 43.065 tons compared with the same period in 2021, a year-on-year increase of 13.09%. Among them, 295.423 tons of gold were mined and 76.625 tons of non-ferrous by-product gold were produced. In the first three quarters of 2023, the domestic raw gold output was 271.248 tons, an increase of 1.261 tons compared with the same period in 2022, a year-on-year increase of 0.47%, of which 214.866 tons of gold were completed from gold minerals and 56.382 tons of non-ferrous by-product gold.
The fluctuation of domestic gold mine production has led to a shortage of domestic gold raw materials, and gold imported raw materials have become an important supplement to the mainland's gold production. From 2017 to 2022, the output of imported raw materials gold in mainland China showed a fluctuating upward trend, and the gold output of imported raw materials in 2022 was 125.784 tons, a year-on-year increase of 9.78%, and if this part of the imported raw materials was added to the gold, the country produced a total of 497.832 tons of gold, a year-on-year increase of 12.24%. In the first three quarters of 2023, the gold output of imported raw materials was 96.277 tons, a year-on-year increase of 11.48%.
Goldman Sachs analysts noted that gold "provides the best protection against extremely high inflation caused by the loss of central bank credibility and geopolitical supply shocks." Their "inflation hedge toolbox" also includes energy and agriculture. The base case is for gold to rise to $2,700 an ounce by the end of the year, driven by solid demand from emerging market central banks and Asian households.
The Global Market Outlook for the Second Half of 2024 released by Standard Chartered Bank's Wealth Solutions Department also pointed out that gold remains a core allocation in portfolios as an effective hedge against major recessions and geopolitical risks. Gold prices are expected to rise further as the Federal Reserve begins to cut interest rates.
Note: This article is for content purposes only and does not constitute any investment advice.
Prospective Economist APP Information Group
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