China is reportedly turning its interest towards gold and one other sector as it continues to shed US Treasuries.
According to the latest data from the US Treasury, China sold off $25.7 billion in Treasuries in the month of July, bringing down its total holdings to $730.7 billion.
Citing data from Chinese financial data provider Wind, the South China Morning Post reports that July’s numbers were the lowest reported since January 2009, and a 45% drop from the record $1.32 trillion recorded in November 2013.
While it can’t be 100% confirmed what China’s agenda for its foreign reserves is, Standard Chartered economist Ding Shuang says international investors have been gradually shifting from US dollar-denominated assets to those backed by European currencies in 2025.
Says Shuang,
“Looking ahead, the depth and breadth of European bonds is likely to continue to expand, which could potentially provide an alternative [for the PBOC].”
Alicia Garcia-Herrero, chief Asia-Pacific economist at French investment bank Natixis, says that based on the rise in exports to Europe, China may also be increasing its euro (EUR) holdings as well as the British pound (GBP) and the Swiss franc (CHF).
Bloomberg recently reported that China, which is currently the largest consumer of precious metals, is planning to expand the issuance of “multi-use permits” – a faster approval system – by increasing the number of ports that can accept them, as a way to ease the regulatory burden on gold imports and exports.
The PBOC reportedly says that it is planning to extend the validity of the permits to nine months while also removing limits on the number of times they can be used.
According to a statement from the PBOC, the move aims to “enhance vitality and respond to external shocks by improving business environment at ports.”
Macro investor Luke Gromen recently said that by rapidly accumulating gold, China was rolling out an “elegant” solution to the yuan’s depreciation while ensuring that many of its citizens do not financially suffer.
“In theory, state-backed bank, state-backed debtor: debtor defaults on the bank, both state-backed, no loss. There’s no ability to flow out except on a limited basis through gold, but you already pre-loaded your citizens for 20 years with gold.
So the only way to capital in any real way out of China is for the price of gold to go up a lot in Chinese yuan… The gold that all of its citizens have been front-running for 20 years goes up. Their balance sheet goes up in yuan terms.”
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