Financial encyclopedia

The State Administration of Foreign Exchange announced that the mainland's gold reserves reached 72.96 million ounces at the end of November, an increase of 160,000 ounces over the previous month. This is the first time that China has increased its holdings after maintaining the scale of its gold reserves for six consecutive months. What is the deep intention behind this move? What are the implications for the market?

Geopolitical considerations

With the US dollar being "weaponized" in the international financial system, China is facing the challenge of US dollar risk. Gold, with its borderless and anti-inflation characteristics, has become a natural option to hedge the risk of the US dollar. Diversified allocation of foreign exchange reserves is one of the important strategies for China to cope with the international financial pressure.

Strategic stability

Gold does not depend on the credit of any country, and its value is not affected by international sanctions or fluctuations in the liquidity of the US dollar. For China, this has provided a stable barrier for possible international financial risks and enhanced financial flexibility in the future.

Promote RMB international

Gold reserve is one of the important cornerstones of national currency credit. By increasing its holdings of gold, China can further strengthen the position of RMB as a reserve currency, attract more countries to settle accounts in RMB, and thus reduce its dependence on the US dollar.

Coping with the future monetary system reform

With the rise of digital currency, the central bank, gold reserves can also be used as the underlying supporting assets of digital RMB, providing it with higher stability and international credibility.

Impact on the market:

Although the scale of China's increase in gold holdings is relatively limited, which has little direct impact on the price of gold, this move will further increase the market demand for gold, and may trigger other countries and institutional investors to follow suit and form a positive feedback effect.