China added gold to reserves again in July

China added gold to its reserves again in July added. The central bank bought 320,000 troy ounces last month, increasing its gold holdings to 62.26 million troy ounces. Converted to tonnes, this is a purchase of just over 10 tonnes, increasing the total gold reserve to 1,936.5 tonnes. It is the eighth month in a row in which the country has added precious metal to its reserves.

China began buying gold in December 2018 to diversify its reserves. The country still has relatively little precious metal and is therefore gradually expanding its stock. In the period from December last year to June this year, the central bank managed to collect a total of 84 tonnes of gold.

China's official gold reserves represent the current Gold price of $1,500 per troy ounce is worth about $93.4 billion. That seems like a lot, but it's only three percent of China's total reserves $3.1 trillion. The rest consists of foreign exchange reserves in the form of dollars, euros and other currencies.

China continues to buy gold to diversify its reserves (Source: Bloomberg)

Diversification

Central banks have been net buyers of gold again since the 2008 financial crisis. It is striking that emerging economies in particular are expanding their gold reserves and that they have been doing so at an increasing pace in recent years. Last year, central banks as a whole even bought a record amount of gold.

The precious metal has no counterparty risk and also offers protection against a possible devaluation of a currency. Several central banks therefore consider the gold stock not only as a means of making ends meet, but also as an instrument to absorb the depreciation of foreign exchange reserves.

According to analyst and consultant Philip Klapwijk of Precious Metals Insights Ltd., China would be wise to reduce its exposure to the dollar. Opposite Bloomberg he had the following to say about it.

"It's important for China to diversify from the U.S. dollar. In the long run, even the relatively small gold purchases will count and contribute to achieving this goal."

Gold price to highest level in six years

The price of gold has risen sharply in recent weeks, even reaching its highest level in more than six years. In dollars, the price rose to $1,500 per troy ounce, while the price in dozens of other currencies is already at an all-time high. Investors are seeking refuge in gold due to the trade war, rising geopolitical tensions and uncertainty about the global economy.

Last week, Trump announced new import tariffs on Chinese goods, putting trade talks on hold again. In response to the news, stock prices fell and a flight to safe havens began. As a result, Treasury yields fell, while the price of gold shot up.

The custodian of China's reserves, the State Administration of Foreign Exchange, Stated recently that China is buying gold to maintain the value of its total reserves. Also, several European central banks have recently well-known that gold will continue to be an important part of monetary reserves.