PBOC halts gold buying spree, prices drop over $50/oz

Investing.com -- The People's Bank of China (PBOC) reported no change to its gold holdings in May in data released on Friday, marking an end to its one-and-a-half year long buying spree. Given that the rally that has seen gold hit record highs has relied on central bank purchases, particularly by China, gold prices sold off by over $50 per ounce on Friday.

China's central bank had been purchasing gold since November 2022, with April being the 18th consecutive month of acquisitions, although it was the smallest addition during the period. The May data indicates that the PBOC's gold holdings remained steady at 72.8 million ounces, unchanged from April. The World Gold Council had reported that the first quarter of 2024 saw the strongest increase in global central bank gold purchases since records began in 2000, with China being the largest contributor.

The buying spree had been a critical factor underpinning the rally in gold prices, driven by central bank interest, consumer demand, and particularly strong Chinese buying. The World Gold Council has noted that there is a level of unreported buying that is not reflected in their data, suggesting that the actual scale of central bank purchases might be even greater.

The PBOC's decision to pause at a time when gold prices are at a peak seems to have been a catalyst for the market's reaction. Analysts at RBC Capital Markets said in a note Friday that without continued purchases from central banks and sustained consumer demand, the rally in gold prices could be vulnerable and that better opportunities to enter the gold market may present themselves before the end of the year.