As the trade war continues to escalate, China's rapid move towards de-dollarization continues. China added more than 100 tons of gold to its reserves since December 2018 and has also been divesting US Treasuries.
Bloomberg reported the People's Bank of China acquired 188,800 ounces, or about 5.9 tons of gold in Sept., raising total holdings to 62.64 million ounces in September from 62.45 million in August. Over the last nine months, China added a whopping 100 tons of gold to its reserves as a hedge to a deepening trade war.
Gold jumped to a six-year high in September as economic turmoil across the world is pointing to a global trade recession in 2020. Central banks have been leading buyers of the precious metal, especially ones based in emerging markets. Gold purchases by China and central banks will continue through 2020, Bloomberg notes, as protectionist policies spurred by the Trump administration have blown up global supply chains and will continue to produce volatility in global equity markets for the foreseeable future.
"Given strained relations with the US, China needs a hedge against its large holdings of the dollar, and gold serves that function," said Howie Lee, an economist at Singapore-based Oversea-Chinese Banking Corp.
"As China becomes a superpower in its own right, I expect more gold-buying."
Last month's purchases boosted the People's Bank of China's gold reserves to 62.64 million ounces. As shown below, Comex Gold futures tend to rise when China is adding.
The Chinese continue to add gold to their reserves to reduce their exposure to the dollar. As one analyst told Bloomberg in August, "It is important for the country to diversify away from the US dollar. Over the long run, even relatively small-scale gold purchases add up and help to meet this objective."
According to Australia & New Zealand Banking Group Ltd., China's precious metals buying spree could last through the early 2020s.
"Trade war restrictions, in the case of China, or sanctions, as with Russia, give "an incentive for these central banks to diversify," John Sharma, an economist at National Australia Bank Ltd., told Bloomberg in an email response.
"Also, with increasing political and economic uncertainty prevailing, gold provides an ideal hedge, and will, therefore, be sought after by central banks globally."
But China is not alone. Figures released by the Central Bank of Russia (CBR) in September show Russia's gold reserves have reached $107.85 billion as the nation continues to shift its growing international reserves away from the US dollar.
As Bloomberg reports, Russia's central bank has been the largest buyer of gold in the past few years.
In fact, globally, the de-dollarization trend is clear.
During an interview on RT Boom Bust, Peter Schiff called this a "global gold rush on the part of central banks" in preparation for a dollar crash.
"The days that the dollar is a reserve currency are numbered and the smart central banks are trying to buy as much gold as they can before the number is up," Schiff said.
Remember, nothing lasts forever...