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Concerns about sanctions and dollar devaluation drive gold purchases by the Chinese Central Bank, spiking global prices of the precious metal
In 2023, China stood out by purchasing more gold than any other central bank in the world, a strategic move which reflects concerns about possible future sanctions involving the US dollar. That increase in gold reserves boosted precious metal prices to new records, reaching US$2.300 per ounce, or approximately R$11,3, according to the Isto É website.
Gold as a safe haven in times of instability
Gold is Widely recognized as a safe investment during periods of geopolitical and economic turmoil. With ongoing conflicts in the Middle East and Ukraine, and post-pandemic inflation on the rise, investors have been looking to gold as a hedge against currency declines. This trend, combined with China's gold accumulation strategy, has fueled demand and raised prices for the metal.
Strategic purchases by the People's Bank of China
The People's Bank of China (PBC) has consistently increased its gold reserves for 16 consecutive months, according to data from the World Gold Council. In 2023, the PBC acquired 225 metric tons of gold, representing almost a quarter of the total purchased by all central banks globally. In the first two months of 2024, China added another 22 tons to its reserves, which now total around 2.257 tons.
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Diversification of foreign exchange reserves
China has a significant dependence on the US dollar for international trade. A Most raw materials are priced in dollars, and more than half of world trade is carried out using this currency. However, Beijing has sought to diversify its foreign exchange reserves to reduce this dependence. Since 2011, China's dollar holdings have declined by a third, currently standing at around US$800 billion.
This diversification strategy aligns with the objectives of the BRICS countries (Brazil, Russia, India, China and South Africa), which seek to reduce their dependence on the dollar and strengthen their own currencies. The group even considered creating a common currency in the future to challenge the dollar's dominance.
Concerns about sanctions and economic security
China's growing accumulation of gold also reflects concerns about the United States' use of the dollar as a tool for economic sanctions. The ability of the US to impose severe sanctions such as those seen against Russia after the invasion of Ukraine in 2022, caused many countries to reconsider the composition of their foreign exchange reserves. Chinese leaders fear that in the event of a military conflict involving Taiwan or an escalation of the trade war with the United States, the country could face similar sanctions.
Future Outlook for Gold and the Global Economy
Analysts at the World Gold Council expect the trend of gold purchases by central banks to continue in the coming years, indicating a continued drive for diversification. Currently, China's gold reserves represent only about 4% of the total PBC, a lower percentage compared to central banks in developed economies.
While some experts believe gold prices may be inflated due to speculation, continued demand from countries like China will likely keep the precious metal on the rise. Unlike paper money, gold has intrinsic value, being a rare and difficult-to-extract commodity with multiple economic uses, including electronics, dentistry, medical tools, and the defense and aerospace sectors.
