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What Drives China's Incessant Acquisition of Gold?

Updated: 3 days ago

China's recent accumulation of gold has captured the attention of global financial markets. According to the World Gold Council, the Asian giant has increased its gold reserves at an unprecedented pace, reaching as of April 2024 historical levels valued at $170 billion dollars. What is driving China’s voracious appetite for gold?


Gold bullion and China
China has the sixth largest gold reserve in the world, just behind Russia.

Although China mines more gold than any other country in the world, since October 2022, it has acquired record quantities of the metal, reaching its highest level of reserves since 2000. In this article, in 5 key points, we summarize the reasons driving this strategy:


1. Protection Against Geopolitical Conflicts


With tensions between China and the United States reaching increasingly higher levels as a result of trade disputes and geo-political rivalries, Beijing is seeking measures to protect its economy in the event of a direct confrontation. According to Bloomberg, the accumulation of gold by the Central Bank of China is seen as an effort to protect itself from eventual western sanctions in the event of a potential conflict. In one word, what China is looking for is security.


2. Reduction of the Risk of Western Sanctions


China has learned the lesson taught by the sanctions imposed on Russia. Freezing foreign exchange reserves owned by the Russian government in Western banks has led China to look for alternatives to protect itself against eventual freezing of its assets in Dollars.


According to the World Gold Council, China has increased its gold reserves by 16% from October 2022, going from 3.2% to 4.6% of its total reserves. This indicates a clear effort to diversify its assets and reduce its dependence on the US dollar. China now has the sixth largest gold reserve in the world, just behind Russia.


3. Competition with India


China and India have typically competed for the title of the world's largest buyer of gold. However, in 2023, China took the lead, with a record increase in its purchase of gold.


During 2023, the demand for gold jewelry increased 10% in China, while in India it fell 6%, according to data from the World Gold Council. Furthermore, gold bullion investments increased 28% during the same period. This competition between China and India for gold highlights the importance that the precious metal has as a store of value in Asian culture.

Graphic of the Gold bar and coin investments in India and China
Gold bar and coin investments in India and China. Source: ZeroHedge

4. Increase in Inflation and Volatility


One of the reasons China accelerated the purchase of gold, was a response to the rising inflation and volatility in global financial markets. With gold trading at nearly its historical maximum of $ 2,400 per ounce in April 2024, China considers the precious metal a reliable store of value.


China's urgency to buy large amounts of gold is clear, carrying out these operations at a time when the gold metal is experiencing a significant upward behavior.


5. Impact on the Global Market


China’s accumulation of gold has important implications for the global gold market and its financial stability. The People's Bank of China bought 27 tons of gold in the first three months of 2024, taking its reserves to an all-time high of 2,262 tons, according to data from the World Gold Council. This is the reason behind the 34% increase in imports of the precious metal in  Q1 2024 compared to Q1 2023.

Graphic of the Non-monetary gold imports into China from February 2018.
Non-monetary gold imports into China from February 2018. Source: ZeroHedge

China’s increase in gold demand has caused the premium paid in this country to be considerably higher, compared to Western prices.


Graphic of Chinese gold prices
Elevated Chinese Gold Prices from June 2023. Source: Bloomberg

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