According to an informed source, the People’s Bank of China is increasing its gold holdings in Hong Kong. This move may help Hong Kong become a major gold trading center.
The source added that the People’s Bank of China has been increasing its gold reserves in Hong Kong over the past few months. This increase has accelerated the long-term trend of the People’s Bank of China transferring some of its gold reserves from London back to the domestic market. He also noted that the transfer of metals from London to Hong Kong will continue.
Many central banks around the world choose to store part of their gold reserves in London – the world’s largest gold market – because this way, they can actively manage their inventories by borrowing from commercial banks. Large gold reserves are also an important source of liquidity.
However, in recent years, some central banks, including India and Serbia, have moved some of their gold reserves back to their home countries for security or political reasons. The People’s Bank of China is also one of the world’s largest official gold buyers, and its gold purchase volume in June was the highest since October 2023, marking the 20th consecutive month of increasing gold holdings.
The People’s Bank of China’s increase in gold trading volume to transfer to Hong Kong indicates its support for the gold clearing mechanism that was piloted last month. This mechanism includes a new benchmark price, which is a key step in strengthening Hong Kong’s role in the global price discovery mechanism and poses a challenge to existing gold trading centers and regional competitor Singapore. Singapore also has plans to enhance gold trading.
The governor of the People’s Bank of China, Pan Gongsheng, said at the official launch ceremony in July that the central bank will continue to increase the allocation of foreign exchange reserves to Hong Kong, reaffirming his commitment made in early 2025.
The city has also invited other central banks to participate in the clearing system, with a focus on countries involved in Beijing’s “Belt and Road” initiative. This is an extension of China’s continuous efforts to become a foreign gold reserve custodian, and Cambodia has accepted this proposal.
The purchase by the official sector was the main driving force behind the gold price reaching a new historical high of nearly $5,600 per ounce at the end of January. The price had remained at this level for three years before the outbreak of the Iran war a month later, which accelerated the decline in the price, and rising energy prices raised concerns about inflation, which increased the possibility of rising interest rates, and posed an adverse impact on gold that does not generate returns.
In recent weeks, the gold purchase by the People’s Bank of China has played a crucial role in maintaining the key support level of the gold price above $4,000 per ounce. In addition to the People’s Bank of China increasing its gold purchase, institutional investors have also flocked in when the gold price fell, and Chinese gold ETFs have recorded the longest inflow period since March.
