[West Street Observation] The Central Bank's Buying Gold at Lower Prices and Its Inspiration for Ordinary People
Gold prices have fallen, and the central bank is stepping up its gold hoarding.
According to the latest foreign exchange reserve data released recently, the central bank increased its holdings by 480,000 ounces of gold in June, setting the highest monthly purchase record since November 2024.
Interestingly, gold prices fell sharply throughout June, with a monthly drop of 11.7%, and market sentiment was low.
The decline in gold prices is not unrelated to the sudden rise in expectations of a Federal Reserve interest rate hike. Subsequently, the US dollar and US Treasury yields rose simultaneously, and gold, a non-yielding asset, faced capital outflows.
The previous continuous surge in gold prices, massive profit-taking by investors, combined with capital diversion to the technology sector, and multiple negative factors converging, led to this rapid correction.
When ordinary investors were panicking and on the sidelines, the central bank increased its positions aggressively against the trend. This seemingly "contrarian" move is worth pondering.
In fact, looking back at the operations over the past 20 months, the central bank has always had its own logic and pace. When gold prices rose, it slowed purchases; when gold prices fell, it steadily increased holdings. In March of this year, it increased by 160,000 ounces; in April, 260,000 ounces; in May, 320,000 ounces; and in June, it directly increased to 480,000 ounces. The more the price fell, the more actively it bought.
The central bank's counter-cyclical gold purchases also offer inspiration to ordinary people. Rather than guessing the rise and fall of gold prices every day, it is better to calmly assess the cost-effectiveness of assets—the latter is much easier to implement than predicting market movements.
More importantly, one must find their positioning before buying. Many people regard gold as a short-term speculative product, solely focused on buying low and selling high. Once gold prices correct, their mentality immediately collapses.
In the central bank's asset portfolio, gold is the ballast stone of the entire foreign exchange reserve, pursuing long-term safety rather than short-term returns. Bonds have default risks, sovereign currencies depreciate continuously, and only gold is not constrained by credit.
Currently, ordinary people need to clarify their goals when allocating gold. If it is for short-term speculation, they must naturally bear price fluctuations.
If it is used to balance a portfolio of deposits, stocks, and funds, then falling gold prices are actually a positive, allowing them to increase their family's safe assets at low cost.
That is, first fill the allocation gap, then worry about market fluctuations. The central bank's continuous increase in gold holdings is core to filling the reserve shortfall. Currently, China's gold accounts for only 8.8% of its foreign exchange reserves, far below the global average of 27%, indicating significant room for safe asset reserves.
The same applies to family financial management. If an account has not yet allocated gold, the primary task is not to predict gold price trends, but to first supplement this asset "insurance."
The current gold bull market started in 2022, triggered by the continuous weakening of the US dollar's credit.
To reduce dependence on US dollar assets, central banks around the world have initiated a gold buying spree. China's central bank has steadily increased its holdings over the long term, continuously raising the proportion of gold in its foreign exchange reserves. Of course, US dollar oversupply and long-term inflation also continue to support gold prices.
The gold price trend in the second half of the year is full of uncertainties, and no one can predict it accurately. But what is certain is that holding a portion of hard assets outside the credit system makes a family's risk resistance completely different from tying all assets to deposits, stocks, and bonds.
In the face of market volatility, learning the central bank's steady approach is far better than frequently betting on market movements to preserve one's wealth.
