China May be Secretly Stockpiling Gold. Why That Spells Trouble for the U.S. Dollar
The global trade war also suggests that America will be pulling back from foreign trade, so there’s “less reason for other nations to hold so many dollars,” he said.
SEATTLE (Scrap Monster): China’s central bank has been buying physical gold to add to its reserves for at least the past three years — and there’s growing speculation that the country may be purchasing even more of the metal in secret as part of a strategy to reduce its reliance on the U.S. dollar.
The ramp-up in gold purchases by the People’s Bank of China (PBoC) began back in 2022 when Russia invaded Ukraine, Jan Nieuwenhuijs, gold analyst at Money Metals, told MarketWatch.
The West at the time froze Russia’s foreign-exchange reserves — the U.S. dollar and euro. That was the “moment the dollar was weaponized in a way never seen before, which scared foreign central banks and spurred them to buy record amounts of gold,” he told MarketWatch.
In 2022, the PBoC reported the first increase in its gold reserves since September 2019, according to the World Gold Council. But that does not mean the central bank made no purchases of the precious metal for its reserve between those time periods. That’s because getting accurate data from China is widely known to be a challenge, as its government is known for its secrecy.
“Given how much gold it’s buying, it’s quite sensible for China to limit public disclosures where possible,” said Stefan Gleason, president and chief executive at Money Metals. “After all, it’s not in the interest of any bona-fide buyer to take actions that make its purchases more expensive than they need to be.”
Official gold purchases
Still, data reported by China’s central bank does show overall additions to its gold reserves in recent years — and analysts say there’s good reason for that.
The PBoC reported total gold purchases of 62 metric tons in November and December 2022, lifting its total gold reserves to over 2,000 metric tons for the first time, according to the WGC.
The following year, the PBoC was the largest single gold buyer among central banks, adding 225 metric tons to its gold reserves in 2023 to total 2,235 metric tons, the WGC said.
And in 2024, the PBoC reported buying 44 metric tons of gold, with 29 metric tons of that purchased between January and April. Then, it did not report any changes to the gold reserves until buying resumed in November, the WGC said. It held 2,280 metric tons of gold, representing 5% of total international reserves, at the end of 2024.
China and other nations, “especially those that are not close allies of the U.S., want to reduce their reliance on the U.S. dollar for reasons beyond mere diversification,” said Money Metals’s Gleason, with those nations having seen the U.S. “weaponize the dollar against both Iran and Russia.”
The global trade war also suggests that America will be pulling back from foreign trade, so there’s “less reason for other nations to hold so many dollars,” he said.
When asked if the PBoC may be buying more gold than it’s disclosing, Joe Cavatoni, market strategist at the WGC, acknowledged that there is ongoing discussion in the market about “whether the PBOC’s reported purchases fully capture its activity.”
However, the WGC has found that “China regularly provides reporting in line with the rules,” he said. In some instances, it may be delayed, but it is “always adjusted to reflect the activity.”
The WGC works with Metals Focus to aggregate data reported by the PBoC, in accordance with the International Monetary Fund guidelines, said Cavatoni. The WGC is “confident” that Metals Focus has “accurate numbers quarterly,” he said.
Still, Cavatoni admitted that there is “always the case that maybe more is going on than is reported.”
Courtesy: www.marketwatch.com