MNI: PBOC To Continue Gold Buying As Dollar Hedge

The People’s Bank of China will continue raising its gold holdings to diversify its vast foreign reserves, hedge against weakening U.S. dollar credit and support the yuan’s internationalisation, policy advisors and researchers told MNI.

The PBOC is expected to keep increasing its gold holdings, with the share in official reserves likely to climb to 10-12% in the medium term from about 7% now, said Bruce Pang, senior fellow at the National Institution for Finance and Development, citing gold’s unique role as a safe-haven asset, inflation hedge and store of value.

China’s gold reserves stood at 74.02 million ounces, worth USD253.8 billion, at end-August, marking a 10th straight monthly increase, State Administration of Foreign Exchange data showed. The country's total reserves were USD3.64 trillion, with USD3.32 trillion held in forex, mostly in U.S. dollars.

Wu Dan, researcher at the Bank of China Research Institute, said purchases are driven by strategic considerations – optimising the reserve structure, advancing yuan internationalisation, and responding to global changes. Gold can strengthen the credibility of a sovereign currency, she said.

Despite record-high prices, Wu noted rising geopolitical tensions and eroding U.S. credit enhance gold’s role as a “non-sovereign credit reserve asset.” With global central banks’ gold holdings averaging about 15% of reserves, she sees room for China to keep buying, though the PBOC will manage the pace to avoid overpaying.

BULLISH OUTLOOK

Gold is likely to remain in a bull cycle near term, supported by central banks’ demand, a weaker dollar and strong safe-haven flows, while sluggish mine supply adds price support, Pang continued. Trade uncertainties, geopolitical conflicts, de-dollarisation and the U.S. Federal Reserve’s expected easing cycle will also underpin medium-term demand, he added. （See MNI: Fixing Price Guides Yuan Rally, Pressure Ahead In Q4）

The spot gold price broke through USD3,650 per ounce this week, setting a new record high and marking a 40% year-to-date gain. Central banks’ net gold purchases hit 1,136 tonnes in 2024, the second highest on record, with China, Poland and Turkey accounting for more than half, World Gold Council data showed.

Wu pointed to U.S. debt risks and inflation uncertainty under Trump-era tariff policies as further medium-term drivers, while the long-term case rests on de-dollarisation and shifts in the global monetary order. 

Tang Yao, associate professor at Peking University’s Guanghua School of Management, said the U.S. is likely to rely on inflation to ease its debt burden, while a more dovish future Fed chair could weaken the Bank’s independence, further boosting gold’s role as a hedge against dollar depreciation.

YUAN STRATEGY

For the PBOC, gold also supports the yuan’s global role. China added 212 tonnes in 2024, more than the U.S. has accumulated in the past decade. (See MNI INTERVIEW2: China To Move Only Slowly On FX Liberalisation)

Wu said growing reserves signal Beijing’s repayment capacity and prudent asset management, boosting confidence in yuan-denominated holdings overseas. Gold will play a core role for emerging currencies to compete fairly in global markets, she said.

Still, Tang argued yuan internationalisation depends more on China’s institutional strength, economic prospects, and domestic market depth.

A policy advisor said the PBOC also adjusts gold buying to help manage overall reserve scale, with forex reserves broadly targeted between a range of USD3.0-USD3.3 trillion. When holdings exceed the upper bound, the Bank may buy gold while continuing net FX sales to keep reserves stable, the advisor noted.