Business Insider: "Gold has become so expensive that even China's central bank has stopped purchases"

Gold purchases by the People's Bank of China were one of the major factors driving the price of the yellow metal to new all-time highs, but it appears that gold has become so expensive that the bank has stopped buying, writes Business Insider.

China's gold holdings in May were similar to April, according to official data released late last week, meaning the world's second-largest economy's central bank stopped buying gold.

Ewa Manthey, commodity strategist at ING pointed out that the pause of the People's Bank of China makes the yellow metal "vulnerable to more downward pressure", according to Business Insider.

Gold is currently trading around $2,300 an ounce, below a record high of nearly $2,450 an ounce on May 20. The yellow metal, traditionally a safe-haven asset, has seen demand this year, marking an advance of around 12% due to global geopolitical tensions.

In China, the public is buying gold to preserve purchasing power amid economic uncertainty and a weak yuan. But, "gold's record may hurt demand for now," Manthey wrote, as quoted by Business Insider.

According to the source, the People's Bank of China's purchases began to decline in April, when the bank bought just 60,000 ounces of the precious metal, compared with 160,000 ounces in March and 390,000 in February. Before May, the bank had purchased gold for eighteen months in a row, being the world's biggest institutional buyer.

According to the World Gold Council, the People's Bank of China bought 225 tons of gold in 2023, followed by Poland's central bank, which bought 130 tons.

David Tait, the director general of the Council, told Reuters that the world's second largest economy was "just waiting and watching". In his view, if prices fall to $2,200 per ounce, China will resume purchases. On the other hand, the gold mining industry is struggling to sustain production growth as mines of the yellow metal become harder to find, according to the World Gold Council, writes CNBC.

"We saw record mining production in the first quarter of 2024, up 4% year-over-year. But the big picture is, I think, mine production has effectively plateaued, around what it was in 2016, 2018 and we haven't seen any growth since then," said John Reade, chief market strategist at the Council, quoted by CNBC.

According to data from the International Trade Association, mining production increased by only 0.5% in 2023 compared to a year ago. In 2022, growth was 1.35%, a year earlier it was 2.7%, while in 2020, global gold production saw its first decline in a decade, falling 1%.

"After ten years of rapid growth since 2008, the mining industry is struggling to report sustained production growth," Reade said, quoted by CNBC.