Gold update: China makes largest purchase and ECB interest rate hike imminent

The gold price closed fractionally (0.3%) lower this week. Silver fell hard with a loss of 4.3%. The gold-silver ratio moved from 1/78 to 1/83 in a week and a half. The silver price has fluctuated between €660 and €725 per kg since June this year. Last Friday the silver price closed at €688.

The US dollar this week reached its highest point since March this year. The Dollar Index closed at 105.04. Despite the strong dollar, which usually has a negative impact on gold prices, gold remained above $1,900 per troy ounce.

Below is the graph of the Dollar Index since March of this year:

China makes biggest purchase of the year

China’s central bank, the PBoC, reported that China has made the largest gold purchase of 2023. China bought 29 tons of gold in August. In the last 10 months, China has bought gold every month. This year alone, the PBoC purchased 155 tons of gold.

This makes China the largest buyer among central banks this year. Poland is at number two. The country’s central bank has bought 88 tons of gold this year. Number three is Singapore with a total purchase of 74 tons. China’s gold reserves currently consist of 2.165 tons of gold. The largest seller is Turkey with 85 tons.

Source: Statista.com

Last year, central banks bought the largest amount of gold in more than 50 years. This year, total purchases in the first 6 months were higher than in the first 6 months of 2022. A huge acceleration was seen in the last 6 months of 2022. The question is whether this will happen again in the coming months.

ECB interest rate increase imminent

Next Thursday, the ECB is expected to raise interest rates by 25 basis points. It would be the tenth increase in a row. The ECB has increased interest rates by 425 bps (4.25%) since July of last year and the effect of the interest rate increases is becoming increasingly visible.

The Fed also has the option to raise interest rates next week. But the market assumes that the Fed will leave interest rates unchanged. Despite this expectation, the euro lost almost 1% of its value this week.

Central banks are getting closer to the end of the series of interest rate hikes. Gold fulfills the function it has done for thousands of years, long-term wealth preservation.

Agenda

The Dutch inflation figure for August will be announced on Tuesday. The August inflation rate in the US will follow on Wednesday. The ECB’s interest rate decision is on Thursday.