China gulps more gold, while its top bank snags huge London vaultPosted on — Leave a comment
One of Chinas primary tactics by which to navigate its current perilous financial straights is to devaluate its yuan, or renminbi, currency.
The devaluation, among other things, allows China to boost its struggling economy. A weaker yuan increases the competitiveness of Chinese exports and reduces the Chinese propensity to import, Commerzbank strategist Simon Quijano-Evans told Bloomberg.
But while its dumping dollars and other parts of its foreign-exchange reserves, it nevertheless continues to add steadily to its gold holdings.
100+ tons added in 2015: As of December, the Peoples Bank of China (PBOC) bought 19 more metric tons of gold, lifting its officially reported holdings to 1,762.323 tonnes. It added more than 100 metric tons in the second half of 2015, or about a 6% increase since it began updating its reserves via public announcements early in 2015. Still, its current bullion hoard represents only about 1.8% of its total foreign-exchange reserves.
More purchases by the worlds sixth-largest official-sector gold holder could lend support to international prices of the precious metal, Reuters reported. Higher gold prices will not necessarily curb PBOCs buying, but a sharp drop could prompt it to purchase more.
Aiming to rival the U.S. dollar: At these sorts of price levels, combined with Chinas determination to both diversify its foreign reserves and also to try and promote the yuan as a rival world currency to the U.S. dollar, I expect China will maintain its program of gold buying for a considerable period of time, MineLife Pty Ltd. exec Gavin Wendt told Bloomberg.
The world might be rediscovering gold as a safe haven in 2016, but China has never lost focus on the yellow metal and its unique wealth-preserving and diversifying properties. In fact, most informed observers think Chinas true gold holdings are much larger than their officially reported reserves. But until that theory is supported by concrete facts, gold investors now should be comforted by the fact that Beijing remains a steady buyer of bullion, likely for the long haul.
Vault has 1,500-ton capacity: For new proof of Chinas commitment, look no further than a new Reuters report that Chinas largest bank, ICBC Standard Bank, has purchased the lease on Deutsche Banks relatively new 1,500-ton London vault, which became operational in June 2014. The German bank pulled out on the project after liquidating its precious-metals trading arm.
In fact, according to Zero Hedge, ICBC is in fact the world’s largest bank by assets. Control of the new lease is aimed at enlarging its footprint in the city’s bullion market while seeking to fill the gap left by Western banks, which are retreating from commodities to cut costs and reduce regulatory burden, Reuters added.
The bank is currently pursuing membership in the London Precious Metals Clearing (LPMCL) company, which conducts clearing in the London Bullion Market Association. Thus, the vault will help China in its goal to have a greater sway in the price-setting mechanisms of the gold market, which London still dominates.