China adds 19 tonnes of gold to reserves

The Chinese central bank added 19 tonnes of gold to its reserves in the month of July, according to the Financial Times. This brings the total size of the gold reserves to 1,677 tonnes, good for fifth place in the ranking of countries with the largest gold reserves.

It is the second time in a month that China has reported on the size of its gold reserves. A month ago, it was announced that China had increased its gold reserves from 1,054 to 1,658 tons. That's an increase of more than 600 tonnes since 2009, enough to surpass Russia in the ranking of countries with the largest gold reserves.

Accession to SDR

China wants the yuan to be included in the IMF's Special Drawing Rights (SDR), but to do so, the country must abide by a number of rules. One of those rules is to publish the size and value of the gold reserve on a monthly basis. China values its gold reserves according to the current market price of gold.

Diversification

The Chinese central bank wants to diversify its reserves more and therefore remains systematic Buy gold. The Chinese could hardly choose a better time to replenish gold reserves. The dollar is relatively strong against other currencies, while the gold price is under pressure. So China is currently getting a lot of gold for its dollar reserves.

China's gold reserve has more than quadrupled since 2001. At the time, the country had a gold reserve of only 395 tons. The following chart from the World Gold Council's latest quarterly report shows how China has incrementally replenished its gold reserves.

China has added a lot of gold to its reserves in the last fourteen years

Central banks continue to buy gold

It's not just the People's Bank of China that has bought gold in recent years. Globally, central banks have added precious metals to their reserves almost continuously over the past five years. Despite the fall in the price of gold, central banks continue to buy gold.

According to the World Gold Council, central banks will add about 400 to 500 tonnes of gold to their reserves this year. As far as we are concerned, this is a very strong positive signal for the gold market.