China Buys Up Gold Amid Trade War

The ramifications of the trade war between the US and China are being felt well beyond the daily sharemarket gyrations off the next Trump tweet.  The tariffs are already hurting and spooking China and they are actively looking for diversification.

According to the World Gold Council, central banks continued from the record breaking gold buying spree last year to post the highest first quarter in 6 years.

Going for gold

Whilst Russia remained the biggest buyer in that first quarter, it’s not surprising the People’s Bank of China just announced that it has added another 19 tonne of gold in May (2nd qtr) taking its total official holdings to 1,916 tonne.  The increase is the biggest since January 2016 and marks the 6th consecutive month of increases and comes within the turmoil of the US trade war.

China Gold

As regular readers and followers of gold will know, few analysts believe that is all the gold the Chinese central bank owns.  It is just what they are tactically choosing to disclose.  The SAFE (State Administration of Foreign Exchange) and CIC (Chinese Investment Corporation) arms of the Chinese government are believed to own the ‘missing tonnes’ of gold that has been produced and imported by the world’s biggest importer and producer since 2013, but otherwise declared on the PBOC disclosed balance sheet.  Gold is as much a strategic asset as simple financial asset for China.

From Bloomberg:

“The rise reflects the government’s “determined diversification” away from dollar assets, Argonaut Securities (Asia) Ltd. analyst Helen Lau said, adding that retail demand has also picked up. At this rate of accumulation, China could buy 150 tons in 2019, according to Lau.”

““It’s a diversification away from the U.S. dollar, particularly given the trade tensions and the potential technology cold war that’s evolving,” said Bart Melek, global head of commodity strategy at TD Securities. “We have to remember that gold is nobody’s liability.””

At a higher level if you haven’t read our last 2 articles on Jim Rickards’ view on the Chinese strategy you can do so here and here.  They are well worth the read for the bigger picture at play here.