China Continues to Buy Gold But Clamps Down on Private Sales

The Chinese government continues to add to its gold reserves, with over 100 tonnes added to its reserves over the past nine months. Those purchases show no signs of slowing down anytime soon, and with a heightening trade war with the US, expect those purchases to continue well into the future. But while the government continues to add to its war chest, it is trying to restrict individual purchasers from buying gold.

The Chinese government exercises strong control over the gold market, with imports of gold subject to quotas and approval from Beijing. This summer the government cut quotas or didn’t grant import permission for several months, attempting to limit private purchases of gold. Most analysts speculated that this was an attempt to keep foreign exchange, particularly dollars, within the country in order to protect the yuan.

Since gold is priced in dollars on international markets, Chinese gold buyers have to buy dollars first, then use those dollars to buy gold. That means that every ounce of gold coming into China means dollars going out, to Singapore, London, South Africa, etc. At a time when the central government wants to exert as much control over the yuan as possible in order to combat the effects of the trade war, it’s understandable that the government would try to keep dollars in China.

But that means that there’s an incredible amount of pent-up consumer demand now in China for gold, and once those imports are allowed again at their usual levels, new gold purchases in China should provide quite a pop for the gold price. Right now is the time for American investors to take advantage of temporarily lower gold prices to build up their assets and protect their savings and investments before gold takes off once again.

Just as gold took off in price during the financial crisis, it’s poised to do the same thing this time around too. Are your retirement savings benefiting from the protection that only gold can offer?