China adds gold holdings for 17th consecutive month amid drive to diversify reserves

China's gold reserves at the end of March reached 72.74 million ounces, a monthly increase of 160,000 ounces, marking the 17th consecutive month for the country to increase holdings of this asset, the People's Bank of China (PBOC), the central bank, announced on Sunday, as China moves to optimize and diversify its foreign reserves.

Observers said that the growing holdings showed the central bank's continuous emphasis on the traditional safe-haven asset as well as the country's financial security amid increased uncertainty in global markets.

The major reason for China to increase its gold holdings is the uncertainty related to international currencies, especially as the US dollar exchange rate may fluctuate and affect economies that rely on the currency, Xi Junyang, a professor at the Shanghai University of Finance and Economics, told the Global Times on Sunday.

China's holdings of US Treasury debt fell to $797.7 billion in January, ending a two-month increase, according to data released by the US Department of the Treasury in March. As the second-largest holder of US government debt, China's holdings in January fell by $18.6 billion from December. Since April 2022, China's holdings of US Treasury debt have remained below $1 trillion.

In addition to China, many countries have been adding to their gold reserves to partially replace the dollar, which is a result of de-dollarization, Xi Junyang said, adding that gold has major advantages in security and growing investment value.

On the same day, the State Administration of Foreign Exchange (SAFE) said that China's forex reserves totaled $3.246 trillion as of the end of March, a month-on-month increase of $19.8 billion.

Keeping forex reserves above $3 trillion is crucial for China to hedge against international financial risks and stabilize the yuan's value, Hu Qimu, a deputy secretary-general of the digital-real economies integration Forum 50, told the Global Times on Sunday. This situation will help the country to further focus on stabilizing its economic growth.

The SAFE statement attributed the rise in forex reserves to the combined effects of currency translation, changes in asset prices and other factors. It also noted that, affected by factors such as macroeconomic data and expectations of monetary policies of major economies, the US Dollar Index and other global financial asset prices had increased.

The statement added that the fundamental conditions for the economy to pick up are still in place, which will help keep the scale of foreign exchange reserves stable.

Hu expects China's forex reserves to remain stable. For instance, the global demand for affordable Chinese products remains strong despite uncertainties and trade has stabilized, with exports likely to further pick up.

He noted that the current recovery of the global bulk commodity market indicates a further economic revival worldwide, which will support China's manufacturing sector and exports.