China "Injects" Liquidity Ahead of Chinese New Year, Will the Effects Connect to Gold?
Ahead of the Chinese New Year holiday, the People's Bank of China (PBOC) is once again stepping up its game to keep the banking system "flush with cash." The goal is simple: during the shopping season, homecoming, and the traditional red envelope giving season, demand for cash typically rises sharply. If left unchecked, the money market could become strained and funding interest rates could soar.
The most visible step is a large cash injection through money market operations. Several reports indicate the PBOC injected 600 billion yuan through 14-day repo rates, ending a two-month pause for these operations. The market viewed this as a quick way to plug the liquidity hole ahead of the long holiday.
Why such a large amount? Because ahead of Chinese New Year, it's not just people withdrawing cash. There are also other factors that "suck" money from the system: maturities of previous loans/operations, corporate funding needs, and government bond issuance. Bloomberg even calculated that the potential liquidity "gap" ahead of the holiday could be quite large, which is why the PBOC chose to play it safe from the start.
On the other hand, China remains a key story for gold for one reason: the People's Bank of China (PBOC) has continued to increase its gold reserves for 15 consecutive months. This reinforces the narrative that "official" demand from the central bank remains, despite the volatility of global gold prices.
Impact on gold prices and its correlation: Liquidity injections ahead of Chinese New Year typically create calmer/risk-on market sentiment, so in the short term, gold can be held up or corrected as traders take profits. But at the same time, loose liquidity and the Chinese New Year shopping season often boost demand for physical gold in China (jewelry and gifts), and this can act as a cushion against price declines. Reuters noted that Chinese demand tends to strengthen ahead of Lunar New Year, when prices initially correct. (asd)
Source: Newsmaker.id
