Statistics released by the State Administration of Foreign Exchange on April 7th revealed that as of the end of March 2026, China's foreign exchange reserves stood at $3,342.1 billion, a decrease of $85.7 billion, or 2.5%, compared to the end of February. This ended a seven-month streak of consecutive increases. Concurrently, updated official reserve asset data from the People's Bank of China showed the nation's gold reserves reached 74.38 million ounces by the end of March, marking an increase of 160,000 ounces from the previous month and representing the 17th consecutive month of growth.
The decline in foreign reserves for the month is attributed to turbulence in global financial markets, driven primarily by escalating conflict between the US, Israel, and Iran. This geopolitical tension triggered a surge in oil prices and a stronger US dollar, leading to broad declines in global financial asset prices, including gold. Despite this monthly fluctuation, analysts suggest China's foreign reserve level remains ample. They also emphasize the continued necessity for the central bank to accumulate gold.
A key factor pressuring the dollar-denominated reserve value was the depreciation of non-US currencies. In March, the US Dollar Index broke through the 100 level, closing the month at 99.96, a 2.4% increase. This strength contributed to declines in the Japanese Yen, Euro, and British Pound against the dollar by 1.7%, 22.2%, and 1.9% respectively. Furthermore, rising inflation expectations pushed bond yields higher, with the yield on the 10-year US Treasury note increasing by 33 basis points to 4.3%. The panic spread to global stock markets, with the S&P 500 index falling 5.1% and the Nikkei 225 index plunging 13.2%, the latter heavily impacted due to Japan's high reliance on Middle Eastern crude oil imports.
Looking ahead, China's exports are expected to continue serving as a stable foundation for the balance of payments. Export performance in the first two months of the year significantly exceeded expectations, with a year-on-year growth rate of 21.8%. This strength reflects both resilient external demand and the results of China's diversified export markets and upgraded export product structure. Amidst disruptions to global supply chains from oil price shocks, China's advantages in new energy manufacturing and its comprehensive industrial chain are projected to become more prominent. Regarding cross-border capital flows, continued expansion of market access in the services sector and steady deepening of institutional opening-up are expected to keep foreign direct investment stable. Simultaneously, the valuation advantages and allocation value of Renminbi assets are likely to sustain reasonable inflows from portfolio investment. China's overall stable economic operation provides solid support for maintaining foreign exchange reserves at a fundamentally stable level.
Notably, the foreign reserve level at the end of March remained near a decade-high. Analysis indicates that by various standards, reserves above $3.3 trillion are considered ample. It is anticipated that foreign reserves will stabilize around $3 trillion. Ample reserves provide crucial support for maintaining the Renminbi exchange rate at a reasonable equilibrium level and act as a stabilizer against potential external shocks.
The 160,000-ounce increase in official gold reserves in March was the largest in 13 months. The acceleration in purchases is seen as a direct response to a significant drop in international gold prices during the month, which fell by double-digit percentages. This price decline was fueled by rising Middle East tensions pushing oil prices higher, which in turn dampened global expectations for monetary easing, including anticipated rate cuts from the US Federal Reserve. The increased geopolitical risk itself is also a factor motivating central bank gold buying.
Gold prices experienced high volatility due to the Middle East situation. Initially spiking above $5,410 per ounce on safe-haven demand at the outbreak of conflict, prices subsequently fell for multiple consecutive sessions, completely erasing year-to-date gains—a move contrary to traditional safe-haven logic. Prices have shown a consolidating pattern in April.
As of 6:00 PM on April 7th, the spot gold price was $4,675 per ounce, up 0.55% on the day, but still more than 13% below the historical high seen earlier in the year.
While some central banks, including those of Turkey and Poland, engaged in tactical gold sales, likely to temporarily alleviate fiscal pressures or realize forex gains to hedge local currency depreciation, analysts view this as a short-term tactic. The long-term trend of central bank gold accumulation is expected to remain unchanged.
The fundamental reason for the People's Bank of China's continued gold purchases is assessed to be the new global political and economic landscape. This context elevates the necessity of increasing gold holdings to optimize the structure of international reserves, even with prices at historically high levels. Data shows that as of the end of March 2026, gold accounted for approximately 9.3% of China's official international reserves, significantly lower than the global average of around 15%. Furthermore, as a universally accepted ultimate means of payment, increasing gold reserves enhances the credibility of the sovereign currency and creates favorable conditions for the steady and prudent internationalization of the Renminbi. Considering all factors, further accumulation of gold reserves remains the overarching direction.
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