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Precious metals investment terms A to Z

People’s Bank of China (PBOC)

The People’s Bank of China, based in Beijing, is the central bank of China which conducts the monetary policy in mainland China. The top management of the PBOC is composed of a governor and a certain number of deputy governors. Zhou Xiaochuan has been the governor of the PBOC since December 2002. The objective of the PBOC’s monetary policy is to maintain the stability of the value of the currency and therefore promote economic growth.

The PBOC is not as systematically important a central bank as the Fed or the ECB, partially due to its lack of full independence and the relatively small international use of the yuan, but it is still a significant player, due to the size of the Chinese economy. Moreover, the PBOC has one of the largest balance sheets among the all central banks. Contrary to other central banks, the PBOC actively uses changes in reserve requirements as an inflation-fighting tool. Given a high reserve requirement ratio, relatively high interest rates and enormous foreign exchange-reserves, the PBOC is believed to be able to promote economic growth and to assure financial stability. However, the Chinese economic slowdown which deepened in 2015 triggered worries about the Chinese economy and the PBOC’s ability to defend the yuan. These worries pushed up the price of gold in January 2016.

PBOC’s Official Gold Reserves

Gold reserves are gold held by the central bank as a store of value, as a guarantee of payment to depositors or as a way of securing the currency. Because the PBOC had not revealed its official gold reserves for years (from April 2009 until July 2015), many gold analysts speculated that China had probably tripled or quadrupled its gold reserves. In fact, the official gold holdings rose by only 57.33 percent in that period. It implies that China’s official reserves are 1,658 tons of gold (as of July 20, 2015), meaning the fifth position in the world. That update of Chinese gold reserves was below expectations so it was bearish for the gold market. It showed that the country was only interested in roughly maintaining its share of gold reserves as percent of total reserves, and that investors should not base their investment decisions on faith in the Chinese central bank’s demand.

We encourage you to learn more about gold – not only how it is affected by the PBOC’s actions, but also how to successfully use the shiny metal as an investment and how to profitably trade it. A great way to start is to sign up for our gold newsletter today. It's free and if you don't like it, you can easily unsubscribe.

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