Why does the People's Bank of China continue to buy gold?

The reasons for the People's Bank of China to continuously purchase gold can be analyzed from several aspects, reflecting its strategic considerations and changes in the macroeconomic environment:

1. Diversification of foreign exchange reserves

Reducing dependence on the U.S. dollar: China's foreign exchange reserves have long been dominated by U.S. dollar assets, especially U.S. Treasury bonds. In recent years, trade frictions between China and the U.S. and geopolitical tensions have increased the risks associated with dollar assets (such as exchange rate fluctuations and the possibility of the U.S. freezing assets). Increasing gold holdings helps to diversify risks and reduce dependence on a single currency.

Responding to fluctuations in dollar credit: The Federal Reserve's interest rate hike cycle and global concerns about dollar credit have prompted many central banks to turn to gold as a non-sovereign credit asset.

2. Enhancing financial security and demand for hedging

Global economic uncertainty: Factors such as the COVID-19 pandemic, geopolitical conflicts (like the Russia-Ukraine war), and the energy crisis have intensified global economic volatility. Gold, as a traditional safe-haven asset, can enhance a country's ability to respond to crises.

Preventing the risk of financial sanctions: Gold, as a physical asset, is not easily restricted by the international payment system (such as SWIFT), which can enhance China's financial autonomy in extreme situations.

3. Supporting the internationalization of the Renminbi

Enhancing currency credit: Sufficient gold reserves are an important backing for currency credit. After the Renminbi joined the SDR basket, China needs to strengthen the structure of reserve assets to enhance international market confidence in the Renminbi.

Promoting cross-border settlement: Under the trend of 'de-dollarization', gold reserves can provide stability for the Renminbi cross-border payment system (CIPS), helping the Renminbi become a regional or even global reserve currency.

4. Following the global trend of central banks buying gold

Emerging markets' common choice: According to data from the World Gold Council, the annual gold purchases by global central banks have continuously reached historical highs since 2022, with emerging economies (such as Turkey and India) being particularly active. China is following this trend, which is both a strategic adjustment and a measure to maintain international financial discourse power.

Adjusting reserve structure: Compared to developed countries (such as the U.S. and Germany where gold accounts for over 60%), China's gold accounts for a relatively low proportion of its foreign exchange reserves (about 4%), indicating significant room for increase.

5. Long-term value reserve and inflation hedging

Anti-inflation property: In the context of high global inflation, gold, as a hard currency, can hedge against currency devaluation risks and protect the real purchasing power of reserve assets.