China extended its gold-buying spree, adding to reserves for a sixth straight month, as the protracted trade war with the U.S. hurts growth expectations and boosts demand for a portfolio diversifier.
The People’s Bank of China also increased its bullion reserves in May by 15.86 tons, after almost 58 tons of gold were added to the nation’s stockpile in the five months to April. The rise reflects the government’s “determined diversification” away from dollar assets.
The Pure Gold Company states that its clients are not purchasing gold for growth, it’s more about safety and security in the event of market failure. The trend is simple – as most asset classes fall in value, gold tends to increase and for this reason, people purchase the yellow metal in anticipation that equities and property prices continue to be volatile.
Compared to gold ETFs and gold funds, physical gold is easily transferable and very quickly liquidated anywhere in the world. A gold-backed ETF is supposedly backed with 100 per cent physical gold, but many people, including bankers, believe that given gold’s finite availability, it is impossible for every certificate holder to be backed with 100 per cent metal.
Physical gold not only removes wealth from the financial system, but it is also used as a hedge against the uncertainty of both currency movements and market volatility as part of a balanced portfolio. Some investors might put up to 15 per cent of their wealth into physical gold, while others who have just sold a property and plan to buy another in the next year or so invest much more than that in gold. Depending on the balance of assets, some don’t actually want to see their gold increase, because that would indicate that other assets like equities are falling.