On January 7, the State Administration of Foreign Exchange released data showing that as of the end of December 2023, China’s gold reserves stood at 71.87 million ounces, an increase of 290,000 ounces from the previous month. This marks the 14th consecutive month of growth in China’s gold reserves.
　　Notably, global demand for gold purchases remained robust in 2023, and central banks around the world have shown clear signs of actively increasing their gold reserves, with plans to further boost their gold holdings. Since November 2022, China’s gold reserves have increased month by month, adding a total of 9.23 million ounces during this period.
　　An Kai, Head of Global Research at the World Gold Council, stated that gold, as a reserve asset, possesses characteristics such as safety, liquidity, low volatility, and excellent returns. These features enable holders to hedge against risks, effectively enhance portfolio performance, and provide investors with stable and relatively high yields—factors that are crucial reasons behind central banks’ continued purchases of gold.
　　Driven by multiple factors—including gold purchases by central banks around the world and rising expectations of interest-rate cuts by the Federal Reserve—gold prices have performed remarkably well. On the New York Mercantile Exchange, gold futures prices posted a cumulative increase of over 13% for the entire year 2023.
　　“Historically, gold has performed relatively strongly in the later stages of Federal Reserve rate hikes, as central banks tend to increase their demand for gold reserves,” said Lou Feipeng, a researcher at the Postal Savings Bank. In recent years, the global economic recovery has been fraught with uncertainty, and geopolitical conflicts have heightened underlying risks, highlighting gold’s value as a safe-haven asset. As a result, central banks have stepped up their demand for gold in their reserve portfolios. At the same time, central banks are promoting diversification of their reserve assets to better spread risk, which also helps boost demand for gold.
　　Wu Dan, a researcher at the Bank of China Research Institute, believes that increasing holdings of gold is of great significance for optimizing China’s reserve asset structure and balancing the safety and profitability of foreign exchange reserves. Gold reserve assets are relatively less affected by factors such as inflation, financial risks, or geopolitical developments, and possess characteristics including stable value, high liquidity, and attractive returns. Therefore, increasing gold holdings can help enhance the central bank’s ability to manage reserve assets, diversify risks associated with foreign exchange reserves, and safeguard the security and stability of the overall size of foreign exchange reserves.
　　Looking ahead, the surveyed experts believe that central banks’ “gold hoarding frenzy” is likely to continue. According to a report by the World Gold Council, based on a 2023 survey of global central bank gold reserves, more than 70% of the surveyed central banks expect global gold reserves to increase over the next 12 months.
　　“Demand for gold purchases by central banks and official institutions worldwide has doubled, bringing about significant structural changes to the gold market,” An Kai believes. Geopolitical risks, sanctions risks, and the multipolarization of the global reserve currency system are among the factors driving the trend of central banks buying gold. This trend could persist for years—or even decades—and is expected to further bolster gold’s performance. At the same time, gold possesses a dual nature as both an investment instrument and a material used in luxury goods and jewelry production. Consequently, as an important component of foreign exchange reserves, central banks—whether for investment or consumption purposes—are helping to fuel the rising demand for gold.
　　Experts also believe that there is still considerable room for further diversification of China’s reserve assets. Moreover, given the increasingly complex and challenging external environment, it remains necessary—from the perspective of diversified asset allocation—to increase holdings of gold.
　　“Currently, gold accounts for only about 4% of China’s official reserve assets, whereas in foreign exchange reserves held by countries such as the United States, Germany, Italy, and France, the share of gold ranges from 60% to 70%,” said Wu Dan. She added that, amid insufficient momentum for global economic growth, the prospect of developed economies initiating interest-rate cuts, and the global wave of “de-dollarization,” it is expected that central banks worldwide will continue their gold-buying spree in 2024. Consequently, demand from various economies for diversifying their reserve asset portfolios and increasing gold purchases is likely to remain strong.
　　Lou Feipeng also believes that, looking ahead, the Federal Reserve’s potential interest-rate cuts could lead to a weaker U.S. dollar, and global economic uncertainties and instabilities remain abundant. Moreover, the proportion of gold in China’s central bank’s reserve assets is notably low. All these factors will continue to drive the central bank to increase its demand for gold.
　　Industry insiders are generally optimistic about the gold price trend in 2024, which will further boost market demand for gold. “Gold holds excellent investment value in 2024, and its price center of gravity still has upward potential,” said Mingming, Chief Economist at CITIC Securities. The downward trend in U.S. real interest rates is clear, and it’s expected that the Federal Reserve will begin cutting interest rates no later than mid-year. The U.S. disinflation process remains relatively slow; in the current rapid disinflation phase, the sharp decline in energy prices has made a significant contribution. Therefore, there still remains a risk this year that fluctuations in crude oil prices could once again cause nominal inflation to fluctuate.