(Aug 7): China’s central bank is stockpiling more gold in Hong Kong, according to people familiar with the matter, in a move that’s likely to support the city’s push to become a major bullion-trading hub.

The People’s Bank of China (PBOC) has built up inventories in Hong Kong over the past few months, said the people, who asked not to be named discussing private matters. The latest additions are accelerating a longer-term trend whereby the PBOC has been moving some of its gold reserves back home from London, they added.

That relocation of metal from London to Hong Kong is set to continue, the people said.

PBOC and the State Administration of Foreign Exchange (SAFE), which oversees China’s foreign-exchange reserves, didn’t immediately respond to faxed inquiries. A spokesperson for Hong Kong’s Financial Services and the Treasury Bureau declined to comment.

Many central banks around the world choose to store a portion of their bullion reserves in London, the world’s dominant bullion market, as it allows them to actively manage their inventories by lending out the metal to commercial banks. Large volumes of gold held in reserves also provide an important source of liquidity.

In recent years, however, some central banks, including India’s and Serbia’s, have repatriated some of their bullion for security or political reasons. The PBOC has also been among the world’s biggest official-sector buyers, and has stepped up purchases in recent months. It added about 20 tonnes to reserves in July, according to data released on Friday.

By diverting more gold to Hong Kong, the PBOC is signalling its support for a gold clearing system that was launched on a trial basis last month. The mechanism, which includes a new benchmark, is a key step in strengthening Hong Kong’s role in global price discovery and presents a challenge to established centres as well as regional rival Singapore, which has plans of its own to enhance gold trading.

PBOC governor Pan Gongsheng said at the official launch ceremony in July that the central bank would keep increasing the allocation of national foreign reserves to Hong Kong, reiterating a pledge he made in early 2025. 

The city has also invited other central banks to participate in the clearing system, focusing on nations involved in Beijing’s Belt and Road Initiative. That’s an extension of China’s ongoing efforts to become a custodian of foreign gold reserves, an offer already taken up by Cambodia. 

Official-sector purchases were a major driver of gold’s three-year rally to a record high near US$5,600 (RM22,889) an ounce in late January. The start of the Iran war a month later accelerated the metal’s pullback, with energy-led inflation concerns raising the likelihood of higher interest rates and creating headwinds for non-yielding bullion.

In recent weeks, Chinese purchases have been instrumental in keeping gold largely above the key US$4,000-an-ounce support threshold. As well as the increased volumes bought by the PBOC, institutional investors have swooped as prices dropped, with bullion-backed exchange-traded funds in China recording the longest streak of inflows since March.

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