On October 7th, statistical data from the State Administration of Foreign Exchange showed that as of the end of September 2024, China's foreign exchange reserves stood at 3.3164 trillion US dollars, an increase of 28.2 billion US dollars from the end of August, with a rise of 0.86%. It is noteworthy that this marks the third consecutive month of sequential growth in China's foreign exchange reserves and the first time since December 2015 that it has exceeded the 3.3 trillion US dollar mark.

The State Administration of Foreign Exchange stated that in September 2024, influenced by factors such as the monetary policies and expectations of major central banks, as well as macroeconomic data, the US dollar index fell and global financial asset prices generally rose. The comprehensive effect of exchange rate conversion and changes in asset prices led to an increase in the foreign exchange reserves for the month. China's economy has been operating steadily with progress, and the favorable conditions of strong economic resilience and great potential have not changed, which will continue to support the basic stability of the scale of foreign exchange reserves.

Guantao, the Global Chief Economist at Bank of China International Securities, told reporters that the continued increase in China's foreign exchange reserves in September mainly reflected the positive valuation effect of exchange rate conversion and changes in asset prices under the backdrop of the Federal Reserve's unconventional interest rate cut of 50 basis points, leading to a "triple rise" in global stocks, bonds, and exchange rates.

In terms of currency, the US dollar exchange rate index (DXY) experienced a "three-peat" monthly decline, falling further by 0.9% to 100.8, setting a new low for the year, with non-US dollar currencies generally appreciating against the US dollar; in terms of assets, the 10-year US Treasury yield experienced a "five-peat" monthly decline, reaching a new low for the year, with the dollar-denominated hedged global bond index rising further by 1.2% for the month, and the S&P 500 stock index rising further by 2.0%, setting a historical high.

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Guantao stated that in September, the Federal Reserve officially started this round of interest rate cuts, but it does not rule out that market expectations will continue to switch between scenarios of a soft landing, hard landing, and no landing for the US economy. The uncertainty of the Federal Reserve's interest rate policy pace and strength, which is data-driven, remains high, and coupled with geopolitical conflicts and trade frictions, international financial market volatility is inevitable, which will continue to disturb the scale of China's foreign exchange reserves.

However, Guantao also pointed out that since the end of September, with the implementation and effectiveness of China's package of policies to increase counter-cyclical adjustments and prevent and resolve risks in key areas, the domestic economy has continued to rebound and improve. The pressure of unilateral adjustment on the renminbi exchange rate has been alleviated, and the supply and demand situation of foreign exchange within the country has improved, making it likely that China's foreign exchange reserves will maintain basic stability.

On the same day, data released by the central bank showed that China's gold reserves at the end of September were reported at 72.8 million ounces (approximately 22,643.3 tons), unchanged from the previous month, marking the fifth consecutive month of no increase in gold reserves. However, against the backdrop of the international gold price continuously setting historical highs, China's gold reserves, valued in US dollars, reached 191.5 billion US dollars, an increase of 8.5 billion US dollars month-on-month. At the same time, the ratio of China's gold reserves to the scale of foreign exchange reserves was 5.8%, 2.4 percentage points higher than at the end of October 2022 (on the eve of the last continuous increase in gold reserves).

Wind data showed that as of 11 a.m. on October 7th, spot gold fell by 0.30% during the day, reporting at 2,645.299 US dollars per ounce, a slight retreat from the historical high of 2,685.579 US dollars per ounce on September 26th.

The industry generally believes that increasing the proportion of gold reserve assets is beneficial for the diversification of international reserves and the realization of preservation and appreciation. In fact, the diversification of current reserve asset allocation is not an individual behavior but an international trend. Data from the World Gold Council showed that in the second quarter of this year, global central banks purchased 183 tons of gold, a year-on-year increase of 5.6%, with the growth rate increasing by 0.8 percentage points compared to the previous quarter. According to Guantao's calculation, from November 2022 to September 2023, there was a strong negative correlation of -0.751 between China's increase in gold reserves and the international gold price (monthly average), indicating that China paid more attention to buying low rather than chasing highs when increasing its gold reserves.

At present, with the Federal Reserve's interest rate cut cycle officially underway, the future upward space for gold prices has become a major focus of market attention. On September 18th locally, the Federal Reserve announced a cut of 50 basis points in the target range of the federal funds rate to 4.75% to 5%, marking the first interest rate cut by the Federal Reserve since 2020.Luo Zhiheng, Chief Economist at Guangdong Kai Securities, explained that according to the purpose of interest rate cuts, Federal Reserve interest rate cuts can be divided into two categories: one is a preemptive rate cut, which is implemented to prevent economic recession risks when there are signs of economic slowdown; the other is a remedial rate cut, which is taken as an emergency measure when the economy falls into recession or encounters a major crisis.

Luo Zhiheng stated that this interest rate cut is more inclined towards a preemptive rate cut. Currently, the growth momentum of the U.S. economy is slowing down, but there is still a certain distance from a substantial recession. Due to the difference in the intensity of preemptive and remedial rate cuts, the average increase in gold during preemptive rate cuts is less than that during remedial rate cuts.

After reviewing the previous six rounds of Federal Reserve interest rate cut cycles, Lin Xiaoming's team at Huatai Jin Gong found that within 100 trading days after the first rate cut, the probability of gold rising is the highest, and the odds are also the highest. The high odds are mainly due to the fact that after the rate cut on September 19, 2007, gold rose by 24.41% in the subsequent 100 trading days. In the other five rounds of initial rate cuts, the fluctuation range of gold was within 3%. That is, gold has a higher probability of obtaining positive returns and a lower probability of obtaining significant returns, making it a relatively safe asset after rate cuts.

Some market analyses also believe that gold prices are likely to benefit in the Federal Reserve's interest rate cut cycle, and the market's enthusiasm for gold investment remains high. However, the warming expectations for Federal Reserve rate cuts will improve the external environment for the exchange rate of the Chinese yuan, limiting the increase in gold priced in yuan. As a result, some investment institutions choose to exit at high levels to lock in profits. For example, at the end of the second quarter, three of Bridgewater's All Weather Enhanced China Private Securities Investment Funds had exited the top ten holders of three domestic gold ETFs.

Wang Lixin, CEO of the China region of the World Gold Council, once told reporters that short-term gold price trends are difficult to predict, and looking at gold investment from a long-term perspective has a higher chance of success. Historical data shows that over the past thirty years, the average annual return rate of gold priced in U.S. dollars is approximately 6% to 8%. Historical data also proves that holding a certain proportion of gold in a long-term investment portfolio helps to improve overall performance.