Gold bugs will be beside themselves as China has stayed out of the very expensive gold market for the fourth month in a row.
The lack of any buying was once again revealed in what wasn’t included in the monthly data for China’s foreign reserves—a change in the size of its gold holdings, which have remained at 72.8 million fine troy ounces since May.
August marked the fourth consecutive month that the size of the gold holdings has remained unchanged, further confirming that the Chinese are not the naive buyers many gold bugs assume them to be. The bugs believe the Chinese central bank is eager to buy regardless of the price, but that’s not how the country approaches its voracious appetite for commodities.
There have been no purchases since May, even as gold prices have surged to a series of record levels (above $US2,400 and then $US2,400 an ounce), continuing into the early part of this month.
The central bank data showed that the value of China’s gold reserves rose to $US182.98 billion at the end of August, up from $US176.64 billion at the end of July.
This was a rise of 3.5%, just under the 3.6% increase in gold prices during the month, with an average of $US2,513 per ounce.
The $US6.3 billion rise in the value of gold holdings contributed to the $US31.8 billion increase in China’s total foreign reserves, which reached $US3.288 trillion—the highest level since the end of 2015.
Comex gold futures for December delivery edged down 0.6% on Friday, closing at $2,526.80 per ounce.
Gold dropped 1% for the week in the December contract, while the front-month price (for September) was down 0.6% over the week.
The weakness was somewhat puzzling because US bond yields tumbled on Friday following the mixed jobs report for August. The 10-year yield fell to 3.71%, down nearly 20 basis points for the week.
Yields on the two-year bond (which is supposed to better reflect Fed policy changes) closed at 3.65%, down 27 basis points for the week, bringing the US yield curve closer to ending its long-standing inversion (which is often seen as a signal of tougher times ahead).
The US dollar eased by half a per cent for the week but rose on Friday. The Aussie dollar ended down nearly 1.4%, at 66.71 US cents.
Gold didn’t react well to Friday’s news about the economy and the prospect of a looming rate cut, despite expectations that it would benefit. If the weakness in gold continues while bond yields ease, this will be another myth for the gold market to contend with.
China’s gold drought will be a disappointment to bulls for a few more weeks. Since November 2022, the Chinese central bank has been the single largest buyer of gold globally.
Comex copper prices also fell over the week, ending at $US4.065 a pound, a loss of 3.6% over the five days.