The move shows that China has not abandoned its strategy to diversify reserves amid rising tensions with the U.S.
Trump’s victory in presidential elections may have played a significant role in China’s decision making. The active U.S. sanctions policy has served as the key catalyst for gold markets as central banks have started to diversify their reserves to decrease their dependency on U.S. government debt.
As Trump is hawkish on China, his victory may have triggered another round of gold purchases from PBOC, which may last many months. Most likely, China would like to increase the share of gold in its reserves as it prepares for a potential trade war with the U.S.
Interestingly, gold prices did not manage to get back to historic highs after PBOC restarted its purchases. It looks that some traders are willing to take profits off the table ahead of the Fed decision. In addition, Treasury yields have started to move higher in recent days, which was bearish for gold.
In the long term, central bank purchases will continue to serve as the key bullish catalyst for gold markets. PBOC has returned to the market, which will provide additional support to gold prices. While gold does not have enough time to get to the psychologically important $3000 level before the end of the year, it has a good chance to test this level in 2025.
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