China's central bank recorded its biggest monthly increase in gold reserves since October 2023, extending its buying streak to 20 months in June. According to official data released by the People's Bank of China, the central bank added 480,000 ounces of gold, equivalent to nearly 15 metric tonnes. The holdings rose to 75.44 million fine troy ounces from 74.96 million a month earlier, marking the largest monthly addition in over two-and-a-half years.
Despite the increase in gold holdings, the value of China's gold reserves declined to $303.72 billion at the end of June from $340.75 billion a month earlier, as reported by the People's Bank of China. This decline came despite the increase in gold holdings, as spot gold fell 11.65% in June, marking its steepest monthly decline since October 2008. The precious metal briefly slipped below the $4,000-an-ounce mark during the month, with gold prices falling to a near-weekly low as U.S. strikes on Iran boosted oil and the dollar.
The sharp decline in gold prices was attributed to a stronger U.S. dollar and expectations that the Federal Reserve could keep interest rates higher for longer, according to the official data. Markets have increased their bets for a September Federal Reserve rate hike to over 67% chance, up from about 57% on Tuesday, as reported by the CME FedWatch tool. Additionally, concerns that inflation could remain elevated despite peace talks related to the Iran conflict weighed on market sentiment. While gold is seen as an inflation hedge, high interest rates tend to weigh on the non-yielding asset.
Central banks around the world have remained among the largest buyers of gold in recent years, even as prices have remained volatile, as reported by Reuters. Central banks have been increasing their gold holdings in recent years as part of efforts to diversify their foreign exchange reserves and reduce dependence on the U.S. dollar. The continued buying streak despite price volatility demonstrates China's commitment to strategic reserve management, with the latest data showing China's central bank reported its biggest monthly increase in gold reserves in more than two years.
Separately, China and Hong Kong have announced steps to boost Hong Kong's position as a regional gold trading and storage centre, according to The Economic Times. Beijing and Hong Kong authorities unveiled a range of measures to bolster currency, bond and gold trading in Hong Kong. Hong Kong launched a central clearing system for gold on Tuesday and revived dollar gold futures trading. It is also looking at introducing yuan-denominated gold futures as it seeks to become a regional reserve hub for the precious metal, supporting China's broader strategy to strengthen its position in global commodity markets.
