Looking to diversify the country’s massive $3.65 trillion foreign exchange reserves, the People’s Bank of China (PBOC) continues to ramp up its gold holdings at an unprecedented rate.
When I looked at the numbers, I could hardly believe it myself…
Over 5% of total world gold demand currently comes from the PBOC.
The latest figures show China’s increasingly powerful central bank adding nearly half a million ounces of the yellow metal to its reserves in October.
And that was just for October!
China has recently been adding between 450,000 and 600,000 ounces of gold to its foreign reserves per month — expanding its precious metal assets by nearly 60% since 2009.
PBOC’s gold reserves now stand at 55.38 million ounces. That puts China at number six on a list of countries with the highest reserves of the yellow metal. And there are no signs that the PBOC is through buying gold yet.
It’s likely that the Chinese central bank will continue buying gold — especially considering currently discounted prices. And future PBOC gold purchases will certainly continue to add to total demand.
But in the bigger picture, the PBOC purchases are small potatoes compared to Chinese retail and investment demand.
Chinese consumers are on track to set a new record for gold demand this year.
The World Gold Council recently reported that China’s consumer demand for gold exceeded 7.7 million ounces during Q3 2015, accounting for more than 21% of total world demand.
Of course, jewelry is a very large part of that consumer demand. Chinese consumers have been taking advantage of lower gold prices, seen in a modest uptick in jewelry sales for the year. But more notable has been a surge in Chinese gold investment demand — particularly for physical bars and coins.
Back in August, the PBOC significantly devalued the yuan, which sparked significant investment interest in China gold as a hedge.
As a result, Chinese investors went on a buying spree. Bar and coin demand among Chinese investors surged some 70% during the third quarter of 2015 compared to the same quarter last year.
As prudent Chinese buyers are again protecting their wealth from volatility with gold and the PBOC continues to add the yellow metal to its foreign reserves, I expect very robust demand for gold coming from China in 2016.
China has been the world’s largest gold consumer for the past several years. So strong purchasing is an extremely positive sentiment for the overall gold market.
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I expect 2016 to be banner year for gold and gold stocks.
But the time to start buying is right now because we’re already starting to see some positive movement.
Three weeks ago, I wrote to you in Energy and Capital recommending buys on two gold stocks: GoldCorp (NYSE: GG) and Royal Gold (NASDAQ: RGLD). Both have seen positive gains of 6.0% and 5.5%, respectively.
And the market has recently seen even bigger gains. On Friday, shares of Newmont Mining (NYSE: NEM) closed up 9.4% for the day. Shares of Barrick Gold (NYSE: ABX), Yamana Gold (TSX: YRI), and Franco-Nevada (TSX: FNV), as well as many other gold miners, were also up over 5% by the close of day Friday.
For the immediate term, traders will no doubt continue to be focused on next week’s Fed rate announcement. And it’s certainly possible to see gold slip a little off of it current spot price of about $1,085 an ounce — particularly in a knee-jerk reaction upon immediate news of the Fed’s rate decision.
However, I believe buyers of gold and gold stocks today will be in great shape in a few months.
Over the next several weeks, I will continue to bring you more gold investment ideas in Energy and Capital. In the meantime, I would strongly suggest taking a close look at some of the major gold mining companies and buying on any significant dips.
Good Investing,
Luke Burgess
Energy and Capital
