This year, many central banks demonstrated an acceleration in buying gold, and it is clear that China is a major participant. There might be a number of reasons for that despite gold having been a lackluster performer since briefly reaching $2000/oz in July 2020 in the depths of Covid pandemic. Nevertheless, recently gold price has been forming interesting technical patterns suggesting rising chances of an impending breakout. Falling prices of sovereign bonds – most importantly, UST’s – are behind rising concern of their major governmental and institutional holders, because U.S. Treasuries continue to be under pressure from the rising interest rates, while the latter – which appears more and more evident – aren’t as effective as initially was assumed at curbing sticky elevated inflation.

Another big reason lies in the bitter geopolitical fights. According to a report by Nikkei Asia, many believe that China and perhaps other nations, seeing how Russia has been affected by monetary sanctions imposed by the West, must be making haste to minimize their dependency on the dollar – this time without a gimmick. Thus, Emin Yurumazu, a Japan-based economist from Turkey, stated:

“Seeing how Russia’s overseas assets were frozen after its invasion of Ukraine, anti-Western countries are eager to accumulate gold holdings on hand.’ Elsewhere, market analyst Itsuo Toshima said: “China likely bought a substantial amount of gold from Russia.” In the past, China has engaged in behavior quite similar to this. After being silent since 2009 over its gold holdings, Beijing shocked the market in 2015 when it disclosed that it had increased its reserves of gold by almost 600 tonnes. Since September 2019, there have been no reports of any activity.

All in all, according to a recent World Gold Council, WGC’s, report, central banks purchased a net amount of almost 400 tons of gold from July through September, an increase that more than quadruples the previous year’s number.

The most recent sum is a significant increase compared to the 186 tons recorded in the previous quarter and the 87.7 tons reflected in Q1. At the same time, the YTD total alone exceeds any year recorded since 1967.

A number of buyers, including the central banks of Turkey, Uzbekistan, and India, announced acquisitions of 31.2 tons, 26.1 tons, and 17.5 tons, respectively. The issue is that these indicated purchases only amount to around 90 tons, which means these were most likely China and Japan who purchased the approximately 300 tonnes net that is still outstanding.

To complete the picture, according to recent TIC flow data, China became a net seller of U.S. bonds.

According to the United States Treasury Department, it sold $121.2 billion in U.S. debt, roughly the equivalent of 2,200 tons of gold, between the end of February and the end of September 2022.

According to the customs officials in China, Chinese imports of gold from Russia skyrocketed in July, increasing by more than 8-fold on the month and coming in at approximately 50 times the amount from the previous year. It’s also worth mentioning that data presented by Finbold indicates that China and India accounted for 60.53% of the world’s gold jewelry market in 2021 by tonnage of gold accumulated and sold.