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China remains Buy gold, because the latest figures from the Chinese central bank show that the equivalent of 16 tonnes of gold was added to the reserves in January. This brings the total gold reserves of the world's second largest economy to 1,778 tonnes.
Since June last year, when the Chinese central bank opened up about its gold reserves for the first time in six years, it has been buying gold continuously every month. The last Figures of the State Administration of Foreign Exchange (SAFE) show that the total gold supply at the end of January represented a total value of $63.75 billion, an increase of $3.56 billion from December 2015. Adjusted for the development of the Gold price That is an increase of about 16 tons, converted to more than 500,000 troy ounces.
Since June last year, China's central bank has already added 120 tonnes of gold to its reserves. Barclays analyst Feifei Li expects China to continue buying gold at a steady pace this year as well. It expects the central bank to add an average of 17.9 tonnes to its reserves monthly, totalling 215 tonnes for the full year.
The gold reserve of $63.57 billion represents only a fraction (1.97%) of the total value of China's reserve of $3.308 trillion. Yet that percentage is rising rapidly, because China is not only buying gold, but at the same time reducing its total currency reserves. In January alone, that was almost $100 billion.
The Chinese central bank has been diversifying its foreign exchange reserves for some time. At the end of 2014, the governor of the central bank announced that she did not intend to build up any more reserves. In doing so, it effectively signaled that it no longer wants to continue financing the U.S. national debt. Indeed, since then, China has not further expanded its position in US Treasuries. In fact, the total foreign exchange reserve shrank by more than more than last year $500 billion.
The shift from foreign exchange reserves to gold is a process that China is allowing to happen very gradually, because it does not want to disrupt the financial markets. But it is clear that China has embarked on a golden path.
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