01, Central Bank's Major Purchase

It is well known that gold is a natural currency. However, after the decoupling of the US dollar from gold, most countries' currencies are directly pegged to the US dollar, which has led to the neglect of the importance of gold.

But after the outbreak of the pandemic in 2020, the United States has been continuously stimulating the economy, with the scale of US debt growing larger and larger, and repeatedly revising the upper limit, causing the credit of the US dollar to deteriorate, and the importance of gold has been re-emphasized.

However, those who pay attention to China's gold reserves may feel disappointed, as the gold reserves have not increased for 39 months.

But recently, when the latest foreign exchange reserves were announced, we found that gold reserves have increased for three consecutive months, from 62.64 million ounces previously to the current 65.12 million ounces.

This wave of increase indicates that China's gold reserves have once again entered a trend of increasing holdings. Based on the average price of this period, China's central bank should have spent more than 31 billion yuan to buy gold and increase reserves.

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Almost in the same time period, foreign exchange reserves have risen for four consecutive months; for three consecutive months, the exchange rate of the renminbi against the US dollar has risen!

Buying gold and selling US debt seems to be a plan that achieves multiple benefits. The United States can only helplessly accept this, and it seems that trying to suppress the renminbi and China's foreign reserves is not feasible.

02, Renminbi Soars

During the three months when our gold reserves increased, the offshore exchange rate of the renminbi against the US dollar also rose from 7.3365, and by the end of last month, it had risen to 6.7573, a surge of nearly 5,800 points in three months, almost filling up all the losses from the second half of last year.Following the continuous interest rate hikes by the Federal Reserve in March last year, the offshore exchange rate of the Chinese yuan against the US dollar has experienced continuous declines, with at least two significant and rapid drops. One occurred from late April to mid-May, and the second started in mid-August, lasting until October.

To counter the persistent appreciation of the US dollar, our country has been continuously selling US Treasuries, but the increase in gold reserves is a recent development over the past few months.

After continuously reducing holdings of US Treasuries, our foreign exchange reserves also require a more diversified allocation. Gold, as a supranational asset, should become an important component.

Therefore, in the last three months, our gold reserve data has been continuously updated, setting a new high since the records began.

Currently, our holdings of US Treasuries should be around 850 billion US dollars, but our country's current gold reserves amount to 125.2 billion US dollars.

It is clear that the gold reserves are still too small compared to the balance of US Treasuries.

03, Further increases are expected in the future.

Why haven't we bought more gold?

According to data published by the World Gold Council, central banks around the world have been continuously increasing their gold holdings for 13 consecutive years, with last year's total purchase of gold being the highest record in the last 55 years.

However, for more than three years prior, the publicly available data on China's gold reserves has remained unchanged, inevitably giving the impression that we have fallen behind in this aspect.However, the actual situation may not be so. Similar situations have occurred many times in the past. It is very likely that the central bank is continuing to buy gold, but it just announces data changes from time to time. In addition, we are continuing to sell US bonds. In the past year, the net sales amount reached 210 billion US dollars. The funds obtained must also be re-allocated to corresponding assets. Even if only part of it is used to purchase gold, it is far more than the currently announced 31 billion yuan. Therefore, in the future, we should see the gold reserve data announced by the central bank continue to increase.