China Was the Top Central Bank Gold Buyer in 2023

Headquarters of the People's Bank of China, the nation's central bank, in Beijing on Dec. 13, 2021. (Andrea Verdelli/Bloomberg via Getty Images)

The People’s Bank of China (PBOC) was the world’s top central bank gold buyer in 2023, raising its yellow metal reserves by 225 tons throughout the year, according to new data from the World Gold Council (WGC). This marked the biggest single-year haul of gold since 1977.

To finish the year, the PBOC’s gold reserves stood at 2,235 tons, representing about 4 percent of the country’s massive $3.22 trillion international reserves.

The other top central bank buyer was the National Bank of Poland, which raised its total gold holdings by 57 percent to 359 tons. The Monetary Authority of Singapore added 77 tons to its gold reserves, reaching 230 tons. The Central Bank of Libya and the Czech National Bank bought 30 tons and 19 tons, respectively.

The Reserve Bank of India tacked on one ton, and the European Central Bank bought two tons.

The top net sellers were the National Bank of Kazakhstan (negative 47 tons), the Central Bank of Uzbekistan (negative 25 tons), and the Central Bank of Bolivia (negative 18 tons).

Although overall central bank demand was solid in 2023, it eased from the record high achieved in 2022. Last year, central banks purchased 1,037 tons, down by 4 percent from the previous year.

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The average 2023 gold price was $1,940.54 per ounce, up by 8 percent from the previous year. As of Feb. 9, the yellow metal is trading at about $2,040 on the COMEX division of the New York Mercantile Exchange.

China’s Gold Buying Continues to Start 2024

China maintained its appetite for the precious metal in January, acquiring an additional 10 tons of gold and extending its buying streak to 15 consecutive months.

Looking ahead to the rest of the year, it is widely expected that China and other central banks will continue purchasing the yellow metal amid an environment of economic uncertainty and geopolitical strife, according to Louise Street, senior markets analyst at the WGC.

“Unwavering demand from central banks has been supportive of gold demand again this year and helped offset weakness in other areas of the market, keeping 2023 demand well above the ten-year moving average,” Ms. Street said in a statement.

“We know that central banks often cite gold’s performance in times of crisis as a reason to buy, which suggests demand from this sector will stay high this year and may help to offset a slowdown in consumer demand due to elevated gold prices and slowing economic growth.”

Economists purport that China’s gold-buying spree is a strategic move to protect itself from a vulnerable financial system and gradually diminish exposure to the U.S. dollar. The world’s second-largest economy has been facing headwinds, from a plummeting stock market to a debt crisis.

Seeking Shelter During Volatility

In response to the emerging threats in the Chinese economy, PBOC officials announced further policy easing to bolster growth.

The latest policy decision included trimming the reserve requirement ratio—the amount of deposits a financial institution must have in reserve as cash—for banks by 50 basis points beginning on Feb. 5. This would inject an estimated $140 billion of liquidity into the financial system.

Other authorities are mulling over a plan to mobilize approximately $278 billion to the stock market after the leading benchmark indexes tumbled by more than 10 percent to start the year. Conditions in the equities arena were so bearish that about one-quarter of all Chinese stocks were in the red on Feb. 5. The policy proposal ignited a fierce rally to close out the trading week, with the Shanghai Composite Index rallying by 3.4 percent.

An investor walks in front of the share-prices index display at a stocks bourse in Shanghai on May 12, 2003. (Liu Jin/AFP via Getty Images)

The multiple challenges facing Beijing have resulted from the government’s prolonged pandemic-era public health restrictions that have resulted in a sluggish recovery, experts warn.

Since April, factory activity has contracted for nine of the past 10 months as exports have mostly fallen over the past year.

Consumer and producer prices have slipped into deflation amid slowing domestic demand. In January, the annual inflation rate dipped to a lower-than-expected 0.8 percent—the third straight month of a deflation reading. The producer price index has been stuck in deflation for 15 consecutive months.

This is all in addition to the mounting debt challenges gripping China, from local governments to property development giant Evergrande.

The expectation is that this is the beginning of fiscal and monetary accommodation as Chinese policymakers could continue to unleash more policy support measures throughout the year, according to Lynn Song, chief economist of Greater China at ING.

“Sentiment about China’s economy remains downbeat heading into the Lunar New Year. And that’s raising expectations for more policy support despite the country reaching its 2023 growth targets,” he wrote in a Feb. 8 research note.

“Early indications are that while the economy has stabilised in recent months, momentum remains soft right now.”

Because of the various developments over the past year, economists are starting to reject the notion that China’s economy will eventually become the world’s top economy, surpassing the United States.

“The likelihood of the prediction that China’s GDP [gross domestic product] will one day overtake that of the U.S. is declining,” Eswar Prasad, a professor at Cornell University and a former International Monetary Fund (IMF) official in charge of China, said in a recent interview with Nikkei Asia.

According to the IMF’s latest World Economic Outlook Growth Projections, the U.S. economy is projected to grow by 2.1 percent in 2024 and 1.7 percent in 2025. By comparison, China’s GDP is anticipated to climb by 4.6 percent this year and 4.1 percent next year.