China's central bank has increased its gold holdings for the tenth month in a row, reinforcing a broader global trend that economist Mohamed El-Erian says is reshaping how investors think about risk.
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Broader Risk Diversification Strategy
On Sunday, in a post on X, El-Erian shared the official Chinese data showing the surge in gold holdings by the People’s Bank of China. He says the nation’s central bank has increased its gold reserves for the “tenth consecutive month.”
According to El-Erian, this trend isn’t limited to China, with similar behavior playing out globally as central banks and institutions increasingly pursue asset diversification. “This is also occurring elsewhere as part of a broader risk diversification strategy,” he says.
El-Erian sees this as the primary reason behind gold, generally considered a “risk-off” asset, surging to record highs, at the same time as U.S. equities, which are “risk-on” assets, touch new highs.
Gold’s Best Year Since 1978
The yellow metal has had its best year since 1978, with year-to-date gains of 37%, primarily driven by central bank buying and a crisis of trust in U.S. institutions.
The SPDR Gold Trust (NYSE:GLD), the world’s largest gold-backed ETF, is up 34.89% year-to-date, and has received $11.3 billion in inflows so far this year, putting it on course to exceed its 2020 inflows at $15.2 billion.
Last week, it was reported that for the first time in nearly 30 years, central banks hold a larger share of their international reserves in gold, than they do in U.S. Treasuries.
According to risk analyst and author of “Black Swan” Nassim Nicholas Taleb, the U.S. Dollar has lost 40% of its value against gold over the past two years alone. He blames this on the actions of President Donald Trump, saying that he is “exacerbating” the dollar’s decline, citing his trade and tariff policies, alongside attacks on the Federal Reserve.
The SPDR Gold Trust, which holds and tracks the price of gold, was up 1.33% on Friday, closing at $331.05, and is now down 0.14% in overnight trade. The fund has a high Momentum score in Benzinga’s Edge Stock Rankings, with a favorable price trend in the short, medium and long terms. Click here for deeper insights.
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