Gold reserves of China continues to rise as the country splurges persistently on precious metals. For the sixth consecutive month, China increased its gold holdings, continuing a wave of purchases as central banks around the world increase their gold holdings in response to rising geopolitical and economic threats. According to information released on Sunday by the State Administration of Foreign Exchange, China increased its gold reserves by 8.09 tonnes in April. After the country expanded reserves by roughly 120 tonnes in the five months leading up to March, the total stocks presently stand at about 2,076 tonnes.

To diversify their holdings and shield their reserves from the effects of a declining dollar and escalating inflation, central banks have bought significant amounts of gold during the past year. The World Gold Council reported that even while inflows slowed down in the first quarter of 2023, quantities were still at historically high levels. The top purchasers included Singapore, China, and Turkey.

As markets worry about a faltering US economy and indications of ongoing financial stress, the voracious appetite for gold has propelled prices to almost record highs. The geopolitical dangers brought on by the deteriorating Sino-American relations are also enhancing bullion's allure as a safe haven. After a 10-month run that concluded in September 2019, China just underwent a buying spree that started in November. The previous round of inflows ceased in late 2016 before that. China's foreign exchange reserves ended April at $3.2048 trillion, up $20.9 billion from the previous month, according to data. According to Capital.com, here are the main reasons for which China is increasingly stocking up its gold.

Why Is China Accumulating Gold? Three Main Reasons

Preparing Itself To Reduce Dependence On US Dollar

As ties between China and the US deteriorate more as a result of a variety of limitations on Chinese semiconductor businesses, this may be largely attributable to China preparing itself to minimise its reliance on the US currency. Further, as the US has previously demonstrated by punishing Russian central bank reserves, China's central bank reserves now consist primarily of US dollars, which might be subject to sanctions at any time.

To Diversify PBOC's Reserves - bullion  can be easily converted into currency

China is in the need of PBOC to diversify its reserves as soon as achievable, with bullion being a good alternative given its relative ease of conversion into currency, both through authorised and prohibited channels. Although the central bank's expanded purchases are unlikely to have a significant impact on gold prices, they have undoubtedly offered some much-needed support, particularly given that gold has recently battled with the US Federal Reserve's increasingly aggressive interest rate hikes.

To Keep The Economy Stable

This has strengthened the support the precious metals has already gotten from a falling US dollar. Due to its apparently unchecked increase in COVID-19 cases, China may possibly be accumulating gold in anticipation of future international restrictions. Gold reserves might be useful in this situation to maintain a somewhat stable economy if the nation does experience greater limitations, which might cause a major loss of revenue from tourists as well as other industrial and manufacturing activity.