The People's Bank of China has continued its gold purchasing spree for the 21st consecutive month. According to the latest data from the State Administration of Foreign Exchange, official gold reserves increased by 640,000 ounces in July, marking the 21st straight month of expansion, bringing total holdings to 76.08 million ounces by the end of July. Foreign exchange reserves edged up by $2.5 billion to $3.4188 trillion, reflecting positive valuation effects from currency conversions, influenced by monetary policies of major economies and the global macroeconomic landscape. As of now, China's foreign exchange reserves have remained above $3.4 trillion for four consecutive months. The administration noted that the Chinese economy is showing a trend of shifting to new drivers and improving its structure, demonstrating strong resilience and vitality, which supports the basic stability of foreign exchange reserves.
The slight increase in July's foreign exchange reserves was driven by a combination of factors, including exchange rate conversions and asset price changes, as explained by the State Administration of Foreign Exchange. In July, the dollar index fell, while global financial asset prices showed mixed movements, influenced by global macroeconomic conditions and monetary policies of major economies. Wang Qing, chief macro analyst at Dongfang Jincheng, stated that the decline in the dollar index in July had a significant positive impact on China's foreign exchange reserves, slightly outweighing the negative effects of an overall decline in global financial asset prices. Guan Tao, global chief economist at BOC International, further analyzed that the dollar index remained relatively high for most of July but fell sharply at the end of the month, dropping below the 100 mark, a cumulative decline of 1.3% from the end of the previous month. Non-dollar currencies generally strengthened, particularly the yen, which surged by 3.2% in July, its largest monthly gain since May 2025, driven by joint foreign exchange intervention by Japan and the United States. This led to an increase in the valuation of non-dollar assets in China's foreign exchange reserves, boosting the overall reserve size.
Looking ahead, Wen Bin, chief economist at China Minsheng Bank, expressed that exports, as a fundamental component of the balance of payments, are expected to maintain a high growth rate. On one hand, the global manufacturing upswing driven by AI investment continues, supporting both volume and price increases in the semiconductor supply chain. On the other hand, foreign trade entities are actively exploring diversified markets, providing incremental support. In terms of cross-border capital flows, the net inflow trend from the first half of the year is expected to persist. During a recent press conference on foreign exchange data for the first half of 2026, a SAFE official announced plans to introduce a new package of cross-border investment and financing facilitation policies, including improving direct investment facilitation, expanding high-level openness in cross-border financing, and optimizing capital project business registration management. Meanwhile, the listing of 5-year RMB government bond futures on the Hong Kong Stock Exchange complements existing channels like Bond Connect and Swap Connect, providing offshore investors with effective tools for managing the duration and interest rate risk of onshore bonds. "These measures are all conducive to attracting more foreign capital for long-term value investment in China. Overall, the Chinese economy is demonstrating a shift toward new drivers and an improved structure, with strong resilience and vitality, which is favorable for maintaining the basic stability of foreign exchange reserves," Wen Bin said. Wang Qing expects China's foreign exchange reserves to remain broadly stable around the $3 trillion mark in the future. Amid increased external volatility, a moderately ample foreign exchange reserve level provides crucial support for keeping the RMB exchange rate at a reasonable equilibrium level and acts as a ballast against various potential external shocks.
The central bank has stepped up its gold purchases. Data shows that as of the end of July, China's official gold reserves had increased for 21 consecutive months, with a monthly purchase of 640,000 ounces. This also marks the fifth consecutive month of increased gold buying by the central bank, with the pace meeting market expectations. This phase of accelerated gold purchases is primarily driven by a pullback in gold prices. Wang Qing analyzed that after the Federal Reserve's June meeting sent a more hawkish signal than expected, international gold prices fell sharply that month. While gold prices at the end of July were flat compared to the end of June, the average price in July was 4.0% lower than in June. This decline likely served as a direct catalyst for the central bank's faster gold accumulation in July. Over the long term, profound changes in the global political and economic landscape are the core driver of the central bank's sustained gold purchases. As of the end of 2025, gold accounted for approximately 8.8% of China's official international reserves, which mainly consist of foreign exchange and gold reserves. According to data released by the European Central Bank on June 2, gold accounted for 27% of all central bank reserve assets globally by the end of 2025, up from 20% at the end of the previous year. Therefore, there is still room for China's central bank to further increase its gold holdings. "Although gold prices are near historical highs, from the perspective of optimizing the international reserve structure, the necessity of increasing gold holdings has risen," Wang Qing stated.
In the global gold market, central bank purchasing remains robust. According to the World Gold Council, total global gold demand in the second quarter was flat year-on-year at 1,269 tonnes, as gold prices retreated from record highs set at the start of 2026. Total global gold demand in the first half of the year increased by 2% year-on-year to 2,522 tonnes, equivalent to approximately $380 billion. The council's 2026 Central Bank Gold Reserves Survey also revealed that 45% of respondent central banks expect to increase their gold reserves over the next year, highlighting the long-term stable importance of gold in official reserves. After surging to near a record high of $5,600 per ounce in early 2026, international gold prices quickly fell, briefly dropping below the $4,000 mark, cooling bullish sentiment. However, entering August, the gold market staged a strong reversal. As of the close on August 7, international spot gold stood at $4,341.91 per ounce, surging by $264 per ounce for the week, a gain of over 7%. The core driver of this gold price rally was the July non-farm payrolls data from the U.S. Bureau of Labor Statistics, which came in significantly below expectations. This intensified market expectations that the Federal Reserve would keep interest rates unchanged in September, causing the dollar index to fall sharply and propelling international gold and silver prices higher. Louise Street, senior market analyst at the World Gold Council, believes that the strong rally in gold prices at the start of the year reversed in the second quarter, entering a consolidation phase after the pullback from record highs. However, the market still has strong support, confirming gold's recognized role as a risk diversification tool and a store of value. Looking ahead to the second half of the year, global central banks will remain significant gold buyers, though the pace of their purchases may be slightly slower than in the past four years. Wang Qing pointed out that China's current gold reserve ratio is still significantly low, suggesting ample room for further increases. Gold is a widely accepted final means of payment globally, and central bank gold purchases can enhance the credit of the sovereign currency, creating favorable conditions for the steady advancement of RMB internationalization.
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