China has officially returned to gold buying. In November, the People’s Bank of China purchased 5 tons of gold, increasing its reserves to 2,269 tons. Last month, the National Bank of Poland (NBP) also bought gold — a substantial 21 tons. This marks the largest gold purchase by the NBP this year and the fourth-largest in the 21st century.
At the beginning of last week, an ounce of gold was priced at just over $2,640. However, the price began to rise again, reaching $2,725/oz on Thursday, December 12. A strong decline followed, and by the end of Friday, gold was trading at just under $2,650/oz.
The correction was triggered by concerning U.S. Producer Price Index (PPI) data, which showed a 3% year-over-year increase and a 0.4% month-over-month rise. After this data — which came in below market expectations — the U.S. dollar strengthened while gold prices dropped.
The PPI is closely monitored by the Federal Reserve, and if these trends continue in the coming months, they could impact the Fed’s policy in 2024. The Fed had planned to gradually lower interest rates next year, but persistently high inflation could alter this course.
Major Central Banks Worldwide are Cutting Rates
This week, all eyes are on the United States, where the Fed meeting is expected to result in a 25 basis point rate cut. According to the FedWatch Tool, the probability of this scenario is currently over 97%.
Last week, major European central banks made similar moves. The Swiss National Bank surprised markets by cutting rates not by 25 basis points, as expected, but by a full 50 basis points. This decision impacted gold prices.
The European Central Bank (ECB) also cut rates by 25 basis points. This week, the Bank of England (BoE) is likely to follow suit, making the same move. The Bank of Canada has already cut rates as well.
Central banks in smaller countries like Bulgaria, Armenia, and Singapore also made similar decisions. We are living in an era of interest rate cuts and elevated inflation, making gold highly attractive to investors.
China and Poland Resume Gold Purchases
In May of this year, China halted its 18-month streak of continuous gold purchases for its central bank. However, some analysts suggested that China may have discreetly bought 60 tons of gold in September, in 400-ounce bars.
Now, the People’s Bank of China has officially reported buying 5 tons of gold, bringing its official reserves to 2,269 tons. With China’s economic challenges, the country is seeking a “golden” balance to stabilize its currency against the U.S. dollar.
The National Bank of Poland (NBP) also went shopping for gold, aiming to achieve a 20% share of gold in the country’s foreign reserves. The NBP regularly buys gold and is among the leading central banks in gold purchases this year.
According to Bankier.pl, in November, the NBP added over 21 tons of gold to its reserves, bringing the total to 441 tons. This represents the largest gold acquisition this year. Confirmation of these purchases is expected on Christmas Eve when the NBP releases official data for the past month.
Michał Tekliński, Gold Market Expert at Goldsaver.pl, Goldenmark Group
Source: ManagerPlus
