China's central bank has approved foreign exchange purchases by some commercial banks to pay for gold imports under recently increased quotas, two people with direct knowledge of the matter said on Wednesday.

The People's Bank of China's (PBOC) gold import quotas for the country's big banks determine how much bullion enters the world's leading consumer of the precious metal. It has in the past tweaked these quotas to help calibrate demand for dollars.

The sources said the PBOC raised such quotas for gold imports last month and has now also allowed the banks to buy the dollars to fund these gold imports.

The move comes on the heels of a raft of stimulus measures announced by Chinese authorities on Wednesday, including interest rate cuts and a major liquidity injection, as Beijing steps up efforts to soften the economic damage caused by the trade war with the United States.

It could help lenders meet a significantly increased appetite for gold while slowing the pace of yuan appreciation, one of the sources said.

The new quotas come at a time when gold has rallied sharply against the backdrop of market volatility induced by U.S. President Donald Trump's trade war.

That has also driven the yuan and other Asian currencies higher as investors unwind carry trades or move money out of U.S. assets and back into Asia.

The sources spoke on condition of anonymity because they are not authorised to talk about the matter.

The increase in gold imports could prevent a sudden rally in the yuan, which would be a double whammy for exporters already under pressure from the intensifying trade tensions between Washington and Beijing.

Damage from high tariffs on Chinese goods under U.S. President Donald Trump has started to filter through to economic activities, as seen from slumping new export orders in April.

Gold, traditionally seen as a refuge from political and economic uncertainty, scaled an all-time high of $3,500 per ounce last month, boosted by tariff war fears and strong investment demand in China and elsewhere.
Despite high gold prices, China's central bank also increased gold reserves for the sixth straight month in April, official data showed on Wednesday.

Courtesy: Reuters