In a recent article that appeared in the national and international press we read verbatim:
“Gold prices slipped today following news that China has stopped buying the yellow metal. As of 2.30pm on June 7, 2024 gold futures fell 2.41% to $2,333 an ounce , while the spot gold price XAU/USD lost 2.53% to $2,316. The May stop interrupts a massive wave of purchases by the Chinese central bank that has lasted for 18 consecutive months contributed to the rally of the precious metal, which in recent months has reached new historic highs above 2,450 dollars an ounce. The People’s Bank of China has not revealed the reasons that led it to stop purchases. According to data released today by the central institution, gold held by the PBOC remained unchanged at 72.80 million troy ounces last month. At the same time, foreign exchange reserves rose to $3,232 billion at the end of May, up from $3,200.8 billion. dollars at the end of April and the $3,210 estimated by analysts on the eve of the event”.
An attempt at analysis is necessary.
Chinese monetary policy is not easy to decipher, although it must be said that there are currently several elements of weakness plaguing the seemingly prosperous Chinese economy.
On the one hand, China is experiencing a significant liquidity crisis due to the fact that Chinese banks have been effectively forced to finance large companies in real estate crisis to avoid their collapse and, with it, the explosion of the real estate market, the bursting of the real estate bubble which most erroneously believe has already occurred while in reality it represents the specter that greatly agitates the sleepless nights of the Beijing establishment to the point that the PBOC has drastically reduced the percentage level of the banks’ collateral reserves for the sole purpose of making the large quantities of currency necessary for the aforementioned credit disbursements can be disbursed.
The measure chilled foreign investors significantly also due to the concomitant lowering of the base rate also decided by the PBOC: a measure which, adopted without success to boost domestic demand, not only did not have the desired effect, but also brought the profitability levels of the Chinese banks themselves to unattractive levels and real risk.
From this point of view, the decline in gold purchases could be explained as dictated
- by the need for further money to stop the situation pro tempore. In this sense, the decline in gold purchases could take the form of a speculative and anti-US move in line with the massive sales of US Treasure Bonds
- to worsen the US public finances by promoting an initiative to increase the interest rates offered by the FED, as well as to bring down the price of gold
- so as to bring down the value of the gold reserves of Western countries
- how much to be able to purchase gold at lower prices in due time in order to improve the state of one’s reserves at a lower cost to protect the price of one’s currency
GOLD AND CHINESE MONETARY POLICY
A recent report in the national and international press verbatim reads:
“Gold prices slipped today after news that China has stopped buying the yellow metal.
As of 2:30 pm June 7, 2024 Gold futures dropped 2.41 percent to $2,333 an ounce, while the XAU/USD spot gold price lost 2.53 percent to $2,316.
The May stop interrupts a massive buying spree by China’s central bank that has gone on for 18 consecutive months.
Beijing’s strategy had contributed to the rally in the precious metal, which has hit new all-time highs above $2,450 an ounce in recent months.
The People’s Bank of China did not reveal the reasons that led it to stop buying. According to data released today by the central institution, bullion held by the PBOC was unchanged at 72.80 million troy ounces last month.
At the same time, foreign exchange reserves rose to $3,232 billion at the end of May, up from $3,200.8 billion at the end of April and $3,210 estimated by analysts on the eve of the event.”
An attempt at analysis is required.
Chinese monetary policy is not easy to decrypt although it must be said that at present there are quite a few elements of weakness plaguing the seemingly prosperous Chinese economy.
For one thing, China is experiencing a significant liquidity crisis due to the fact that Chinese banks have been effectively forced to finance large companies in real estate crises to prevent their collapse and, with it, the bursting of the real estate bubble that most mistakenly believe has already happened while in fact it represents the specter that agitates the sleepless nights of the Beijing establishment quite a bit to the point that the PBOC has drastically reduced the percentage level of banks’ collateral reserves for the sole purpose of making the large amounts of currency needed for the above-mentioned credit disbursements disbursable.
The measure has not a little chilled foreign investors also because of the concomitant lowering of the base rate as decided again by the PBOC: a measure that, adopted unsuccessfully to get domestic demand off the ground, has not only failed to achieve the desired effect, but has brought the profitability levels of the Chinese banks themselves to unattractive and real risk levels.
From this point of view, the decline in gold purchases would be explained as dictated:
- by the need for additional money to buffer the situation pro tempore. In this sense, the decline in gold purchases could take the form of a speculative and counter move to the United States in line with the massive sales of US Treasure Bonds to worsen US government accounts by promoting an initiative to raise the interest rates offered by the FED,
- as well as to bring down the price of gold as much
- to bring down the value of the Western countries’ gold reserves
as to be able to buy gold at lower prices in due course in order to improve at lower cost the state of its reserves to protect the price of its currency
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