Gold optimizes reserves portfolio

China's central bank announced it had bought more gold — nearly 25 metric tons — in February, the fourth consecutive monthly increase, a move that experts said will constantly fine-tune the country's international reserves portfolio and cushion the impact of growing geopolitical uncertainties and lingering high inflation in developed economies such as the United States.

The February purchase follows about 32 tons of gold added in November, the first officially recorded increase since September 2019, according to data released by the People's Bank of China.

By the end of February, China's total gold reserves rose to around 2,050.34 tons, PBOC data showed.

Zhao Qingming, vice-president of the China Foreign Exchange Investment Research Institute, said gold plays an important part in central banks' international reserves management. The US, Germany and Italy, among others, hold large stockpiles of gold reserves and lead other countries by a considerable margin.

"Compared with them, China's gold reserves remain at a modest level while foreign exchange reserves take the lion's share," he said, adding the recent moderate increases will help optimize the country's international reserves portfolio and make it more resilient amid growing uncertainties and volatility both on the geopolitical and macroeconomic fronts.

By the end of January, China had the world's seventh-largest official national gold reserves, which took up some 3.7 percent of the global total, according to the World Gold Council.

In contrast, gold accounted for more than 68.1 percent and 67.6 percent of the total reserves of the US and Germany, the two largest holders of gold reserves, as they possess as high as 8,133.5 tons and 3,355.1 tons, respectively, WGC data showed.

"Not only in China, central banks (elsewhere) continue their gold-buying spree, and they collectively added a net 31 tons to global gold reserves in January, an increase of 16 percent month-on-month," said Krishan Gopaul, a senior analyst of the WGC.

"Central banks like gold because it is expected to hold its value through turbulent times and, unlike currencies and bonds, it does not rely on any issuer or government."

Gold also enables central banks to diversify from assets like US Treasuries and US dollar. Since the US dollar is showing signs of weakness now, gold will continue to be a very good hedge against the weakness in the greenback, he said.

Central banks added a whopping 1,136 tons of gold worth some $70 billion to their stockpiles in 2022, by far the most for any year since 1967, the WGC said in a report in late January.