China's Gold Streak Continues as Central Banks Expand Reserves

The People's Bank of China has continued its streak of gold purchases for 21 consecutive months. In July, it added 20 tonnes to its reserves, marking its largest monthly increase since October 2023. This move brings China's year-to-date net purchases to 60 tonnes and total gold holdings to 2,366 tonnes.

According to Krishan Gopaul, Senior Analyst for EMEA at the World Gold Council, these additions are significant as they accelerate the pace of monthly purchases since March. He noted that other central banks are also expanding their reserves, with the Czech National Bank adding 1.7 tonnes last month and the National Bank of Kazakhstan increasing its reserves by more than one tonne in the same period.

Analysts at BMO Capital Markets have pointed to central bank demand as a key factor supporting gold prices above $4,000 per ounce. They expect growing Chinese demand to drive higher gold prices in the second half of the year, with China's appetite for gold likely to remain strong for the foreseeable future.

The analysts also noted that even with its large undeclared holdings, China aims to match the U.S. level of gold reserves. If China were to hold about 18,000 tonnes of gold, it would represent roughly 5% of U.S. M2 money supply at current prices. This target appears to be an absolute minimum goal, implying another 2,500 to 3,000 tonnes of purchases in the next two to five years.