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China Sells $1.9B in US Debt, Stops Buying Gold for 5 Months: What's the Signal?

The latest U.S. Treasury bond holdings data have arrived.

According to the latest International Capital Flows Report from the U.S. Department of the Treasury, China sold off an additional $1.9 billion in U.S. Treasury bonds, reducing its holdings to $774.6 billion.

At the same time, the latest official reserve asset data from our country shows that China's gold reserves were 72.8 million ounces at the end of September, unchanged from the previous month, indicating that the central bank has suspended gold purchases for five consecutive months.

Selling U.S. Treasury bonds and suspending gold purchases, what signals are being sent? What factors are influencing this? Will we buy gold again in the future?

Selling more U.S. Treasury bonds and suspending gold purchases!

The latest International Capital Flows Report from the U.S. Department of the Treasury shows that the holdings of U.S. Treasury bonds by overseas holders have reached a historical high of $8.503 trillion, an increase of 11.5% from a year ago.

Specifically, among the top 10 "overseas creditors" of U.S. Treasury bonds, most have increased their holdings. Japan increased its holdings by $13.5 billion, with a total of $1.1292 trillion in U.S. Treasury bonds. The United Kingdom increased its holdings by $15.6 billion, while the Cayman Islands and France increased their holdings by $41.4 billion and $21.3 billion, respectively.

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The exception is China, the "second-largest overseas creditor" of U.S. Treasury bonds, which chose to continue reducing its holdings by $1.9 billion in August, following a reduction of $3.7 billion in July.

Consecutive months of reducing U.S. Treasury bond holdings have brought China's U.S. Treasury bond holdings to their lowest point since 2009. In the 15 months ending this August, China has been in a state of reduction for 11 months.In addition to reducing its holdings of U.S. Treasury bonds, China has also pressed the pause button on increasing its gold reserves:

According to the latest data from the State Administration of Foreign Exchange, as of September this year, China's gold reserves have not disclosed an increase for five consecutive months, with the country's official gold reserves currently standing at 72.8 million ounces.

However, despite selling U.S. Treasury bonds and not increasing gold holdings, influenced by the decline of the U.S. dollar index and the overall rise in global financial asset prices, our foreign exchange reserves have still increased to $3.316 trillion, crossing the $3 trillion mark for the first time in 9 years.

Increased risk in U.S. Treasury bond holdings

In recent years, central banks around the world have been the main force in increasing gold holdings.

Especially the People's Bank of China, from November 2022 to May this year, increased its gold reserves from 63.67 million ounces to 72.8 million ounces, which, when converted to metric tons, is from 1,805 tons to 2,064 tons, an increase of 259 tons of gold.

The logic behind central banks buying gold is not complicated, with two main reasons.

First, the risk of holding U.S. Treasury bonds is increasing.

In the past, the main component of everyone's foreign exchange reserves was the U.S. dollar, but in recent years, the U.S. has frequently "weaponized" the dollar, creating a "dollar tide" to harvest globally, and the credit of the U.S. dollar is rapidly declining.

Therefore, to prevent the devaluation of foreign exchange reserves and reduce external risks, central banks have chosen to increase their gold holdings.Secondly, gold, as the most important reserve asset, continues to gain significance.

The reason is quite straightforward: with the current global economic turbulence and intensifying geopolitical conflicts, the scarcity, value preservation, and risk-avoidance capabilities of gold have become increasingly prominent, making it highly favored by central banks worldwide.

If we extend our timeline, we will find that the actions of global central banks are essentially synchronized, with a general trend in recent years of selling U.S. Treasury bonds and buying gold, indicating a consensus among them.

For instance, Japan, although it chose to increase its holdings of U.S. Treasury bonds in August, had been reducing them for four consecutive months prior, reaching the lowest level since last October.

Of course, both U.S. Treasury bond holdings and gold purchases are subject to dynamic adjustments, which is also the fundamental reason why we have paused gold purchases for five consecutive months.

Why have we stopped buying gold?

In a nutshell, it is mainly due to considerations of cost and price; to put it bluntly, the current price of gold is too high.

In recent times, influenced by a combination of factors including escalating global geopolitical conflicts, the price trend of gold has been setting new highs, and it remains at a historical peak.

Gold has risen by 17% this year, and last year it increased by 13.45%. If we look at it purely from an investment perspective, the cost-effectiveness of buying gold now is clearly not high.

Although central banks do not buy gold as an investment, adjusting the pace of purchases when gold prices are high can still help control the cost of our gold holdings.Additionally, from a historical perspective, we have actually made similar moves on several occasions in the past. For instance, in 2002, 2009, 2019, and 2022, after the People's Bank of China ceased increasing its gold reserves, there were trends of varying degrees of upward movements in gold prices. This implies that central banks also "bottom-fish," and their actions are extremely precise. Of course, since the current cessation of gold purchases is due to the perception that it is too expensive to buy now, once the price of gold returns, they will continue to buy. The reason is that U.S. Treasury bonds are still rapidly increasing, and their future safety and liquidity will continue to decrease, making their holding value far inferior to that of gold. Ultimately, gold is the hard currency, the true "money," while the so-called "world currency," the U.S. dollar, is showing signs of credit collapse, further highlighting the value of gold. What can be anticipated for the future is that our country's main operations will be twofold: first, to continue reducing U.S. Treasury bonds, with possible brief increases in a single month, but reduction is the long-term trend; second, as gold prices return, we will continue to buy gold. Compared to the increasing risks of U.S. Treasury bonds, holding gold is more secure.您好！看起来您想要我翻译一篇文章，但是您还没有提供具体的内容。请提供您想要翻译的文章，我会尽快帮您翻译成英文。

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