China’s central bank has been accumulating gold steadily for 16 months, in a move that could potentially undermine the US dollar’s dominance.
What happened: The People’s Bank of China added about 390,000 troy ounces of gold in February, bringing its total gold reserves to 72.58 million troy ounces, or about 2,257 tons, Bloomberg reported citing government data.
As of 10 a.m. Thursday in New York, the price of gold was at a record high of $2,161.90, marking a 5.25% increase over the past five days and an 18.77% increase over the past year.
Central bank gold purchases in 2023, totaling 1,037 tonnes, contributed to the commodity’s rally. The recent rise in gold prices has also been fueled by traders’ expectations of Federal Reserve rate cuts.
China’s consistent accumulation of gold, along with that of other central banks, reflects a global trend towards reserve diversification and reduction of dependence on the US dollar. This is in line with the ambitions of the BRICS economic bloc, which includes Brazil, Russia, India, China and South Africa, to challenge the dollar’s global dominance.
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Despite economic uncertainties in China, including a volatile stock market, the country’s demand for gold remains high. This demand is evident in the significant increase in Swiss gold exports to China in January.
Historically, investors have turned to gold as a safe haven asset during times of economic turbulence or inflation. However, some analysts warn that the current high demand for gold may not be sustainable.
Because matter: Soaring gold prices are not unique to China. Global geopolitical tensions, including conflicts in Ukraine and Gaza, the upcoming U.S. presidential election, and uncertainties over interest rates and inflation, have also contributed to a record gold price. This has sparked a debate among investors about the role of the precious metal in their portfolios.
Additionally, the recent rise in gold prices has coincided with new highs for Bitcoin and Nvidia, prompting investors to pay attention to broader market dynamics.
The surge in gold prices has sparked a debate among investors about the role of the precious metal in their portfolios. The rally, attributed to global geopolitical tensions, has led to a record price for gold, raising questions about its long-term value.
Amid these developments, the Chinese central bank’s steady wave of gold buying adds another layer to the ongoing global shift in reserve diversification and the potential impact on the US dollar’s dominance.
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