The latest foreign exchange reserve data is out. On November 7, the People's Bank of China's official website showed that as of the end of October 2024, my country's foreign exchange reserves were US$3,261.05 billion, down US$55.3 billion from US$3,316.37 billion at the end of the previous month.
According to the official reserve asset data updated on the official website of the People's Bank of China, as of the end of October 2024, my country's gold reserves were 72.8 million ounces, still the same as last month. So far, it has been the sixth consecutive month that the People's Bank of China has stopped increasing its gold holdings.
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Standing firm at the $3.2 trillion mark
At the end of October, my country's foreign exchange reserves fell by US$55.3 billion to US$3.261 trillion from the end of the previous month. Despite the downward trend, this is the 11th consecutive month that the size of foreign exchange reserves has remained above the US$3.2 trillion mark.
Wang Qing, chief macro analyst at Orient Securities, analyzed that at the end of October, the size of foreign exchange reserves ended the previous three consecutive months of significant increase and fell by 1.7% month-on-month. The main reason was that the upward trend of the US dollar index that month resonated with the decline in global financial asset prices, which led to a downward trend in the valuation of China's foreign exchange reserves.
First, driven by the approaching US election and the fermentation of the "Trump deal", the US dollar index rose sharply by 3.1% in October, which will cause the non-US dollar assets in China's foreign exchange reserves to shrink accordingly in US dollars. "We estimate that the appreciation of the US dollar in October will directly lead to a decrease in the valuation of my country's foreign exchange reserves by about US$40 billion, which is the main reason for the decline in foreign exchange reserves that month. In addition, the sharp rise in US Treasury yields in October, the decline in US Treasury prices, and the general decline in global stock markets will have a certain downward effect on the valuation of China's foreign exchange reserves." Wang Qing said.
my country's exports have remained strong recently, and cross-border capital flows have been generally stable, which can provide support for the basic stability of foreign exchange reserves. Wang Qing also pointed out that although the RMB has depreciated against the US dollar recently, the three major RMB basket indices such as CFETS have been stable and rising, which means that in the short term, there is no need for the central bank to use foreign exchange reserves to intervene in the foreign exchange market to deal with exchange rate fluctuations. According to different standards, my country's current foreign exchange reserves of about US$3 trillion are at a moderately sufficient level.
Wen Bin, chief economist of Minsheng Bank, also said that the current international political and economic situation is complex and changeable. Trump's return to the White House may reshape the global trade and industrial chain pattern, which will bring both challenges and opportunities to my country. Historical experience shows that my country's foreign trade is strong enough to withstand the impact of Trump's tariff policy. In the future, China will continue to cope with external uncertainties by means of trade liberalization and facilitation reforms, export structure transformation and upgrading, and strengthening cooperation with countries along the Belt and Road. Exports will continue to play a basic role in stabilizing cross-border capital flows.
Wang Qing believes that with the Fed's continued interest rate cuts in the future, the dollar index will have limited room for growth; with the prospect of a loose global financial environment, the risk of a continued sharp decline in the global capital market is relatively small. This means that China's foreign exchange reserves will remain basically stable for some time to come.
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It is unlikely that the central bank will increase its gold holdings in the short term
In terms of gold reserves, the People's Bank of China's "Official Reserve Assets" data showed that as of the end of October 2024, my country's gold reserves were reported at 72.8 million ounces (about 2,264.33 tons), the same as last month. So far, it has been the sixth consecutive month that the People's Bank of China has stopped increasing its gold holdings.
After increasing holdings for 18 consecutive months, the size of official gold reserves has remained unchanged since May this year. Wang Qing pointed out that the reason behind this is that the current gold price is at a historical high, and the central bank's appropriate adjustment of the pace of increase in holdings will help control costs.
From the perspective of gold market price trends, gold prices have been soaring since the beginning of this year, especially setting new historical highs many times recently. As of October 31, spot gold hit the $2,790 mark during intraday trading, an increase of 0.1%, once again breaking history.
Wind data showed that as of 19:43 on November 7, the main futures price of COMEX gold was US$2,672.7 per ounce, down 0.13% on the day; the spot price of London gold rose 0.29% to US$2,666.4 per ounce.
Zhou Maohua, a macro researcher at the Financial Market Department of Everbright Bank, said that in the long run, concerns about US debt risks and the downward trend of the US dollar's credit, as well as the weaponization of the US dollar and some financial infrastructure, may all push gold to continue to play the role of a "super-sovereign currency". There is still room for central banks to increase their holdings of gold, but central banks are more based on long-term considerations. In recent years, affected by extreme special gold, international gold has grown rapidly, accumulating a large number of profit-taking orders, gold price fluctuations have increased, market differences have increased, and gold has risen simultaneously with risk-free interest rates and the US dollar, which are not common.
"Considering that the gold price will remain at a high level above $2,000 per ounce for some time, it is unlikely that the central bank will resume increasing its gold holdings in the short term. However, from the perspective of continuously optimizing the international reserve structure and steadily and prudently promoting the internationalization of the RMB, increasing the central bank's gold holdings will still be the general direction in the future," Wang Qing judged.
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Continue to promote the implementation of incremental policies
It is worth mentioning that the recently introduced package of incremental policies has significantly boosted the stock market, significantly increased the attractiveness of RMB assets to foreign investment, and also provided strong support for foreign exchange reserves. Wen Bin believes that my country will continue to promote the implementation of various existing and incremental policies to achieve results, consolidate and enhance the positive momentum of economic recovery, and lay a solid foundation for maintaining an overall balance in the international balance of payments.
On November 6, the People's Bank of China held a symposium with foreign financial institutions. At the meeting, it was mentioned that the recent package of incremental financial policies has effectively promoted high-quality economic development and maintained financial market stability. Foreign investors' expectations and confidence in the Chinese market have significantly increased. It is hoped that the communication and interaction between policies and the market will be further strengthened, and efforts will be continuously made to promote the implementation of various incremental policies.
In terms of economic fundamentals, driven by the recovery of external demand and the rapid growth of new export drivers such as cross-border e-commerce, my country's exports have maintained a rapid growth momentum recently, which will provide important support for the moderately sufficient level of foreign exchange reserves. More importantly, since September 24, macroeconomic policies have released clear signals of stabilizing growth, including promoting the stabilization of the real estate market, and a package of policy measures is being introduced. This means that before the end of the year, with the continued effectiveness of policies to stabilize growth and stabilize the incremental property market, the momentum of economic growth in the fourth quarter will be significantly improved. These factors will provide important support for the RMB exchange rate and will also help to maintain the stability of foreign exchange reserves.
Wang Qing predicts that China's foreign exchange reserves will remain stable at a level slightly above 3 trillion US dollars in the future, which will provide a solid foundation for maintaining the RMB exchange rate at a reasonable equilibrium level and serve as a ballast to resist various potential external shocks.
Zhou Maohua also said that the scale of foreign exchange reserve assets is expected to remain stable. Despite the complex and severe global political and economic environment, my country has maintained a steady recovery as a whole. The country has introduced targeted policy measures, which have significantly boosted market confidence in economic recovery. As the world's second largest economy, China continues to deepen reforms and adjust its structure. The size of its super-large economy and huge market potential are constantly being released. The long-term improvement of my country's economy provides broad space for the development of global capital. my country's foreign trade is resilient, RMB assets have strategic allocation value, and the proportion of foreign capital still has room for improvement. Cross-border capital flows in an orderly manner in both directions, and the balance of payments will continue to remain balanced.