China Added Its Gold Reserve the First Time After Two Years

Gold bars are displayed at a gold jewelry shop in the northern Indian city of Chandigarh November 4, 2009. (Photo: REUTERS/Ajay Verma/File Photo)

China added its holdings to 59.56 million ounces from 59.24 million ounces by the end of December. According to the data from the People's Bank of China, the countries reserve had been unchanged at 59.240 since they last added in October 2016.

The country is the biggest producer and consumer of gold globally. It boosted holdings of bullion in a month despite the escalating trade tensions with the United States that slowed the country's economic growth.

Spot gold achieved its strongest month in almost two years as the unstable equity markets cause investors to look for a safe haven. Speculations are circulating that the Federal Reserve might pause its interest rate hikes and it boosted the strength to gold's rally into the New Year. Assets in the form of bullion-backed exchange-traded funds attained its seven-month high. Spot gold is currently trading at a 0.5 percent increased price of $1,291.83 per ounce.

According to Matthew Turner, a commodities strategist at Macquarie Group Ltd. in London, it is a bullish sign for gold. He added that the reasons could be diversification, a wish to get away from the dollar, but it's hard to be certain because they don't know their motivations.

Normally, China seldom reveals the increase in their gold holdings. In July 2015, the country's central bank announced a 57 percent increase in its reserve which was the first update in six years.

The Asian economic giant is not the lone rush buyer of gold. Poland and Hungary also announced that they added to their gold holdings for the first time in many years this 2018. Metals focus Ltd expected that China's central banks will increase their gold purchase in 2018 as Eastern Europe and other Asian countries plans to diversify their reserves.

According to the India-based Business Insider, as the Federal Reserve presses pause on its rate tightening cycle, the relative attractiveness of gold will increase as other central banks around the world buy more precious metal in opposition to U.S. government debt.

According to the report, China's increase in gold purchase might affect India since it imports gold and accounts for roughly a quarter of gold demand. Increased gold price due to high demand will certainly push up India's import bill and also its trade deficit. A wider deficit means weakened rupee which adds burden to importers. It is also expected that the Reserve Bank of India might temporarily hold off on its gold buying programme as the prices of gold globally increases.

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