A bold strategy is unfolding, one that could reshape the global financial landscape. China, a key player, is quietly amassing gold, and the implications are massive.
One year ago, a prediction was made: gold prices would soar to unprecedented heights by the end of 2025. This forecast, made by Goldman's analyst Lina Thomas, has proven remarkably accurate, with gold prices surpassing expectations. But here's where it gets controversial: the dollar, often seen as gold's nemesis, has also strengthened. So, how can both gold and the dollar rise simultaneously?
Thomas offers four compelling reasons. Firstly, it's not the dollar's strength that drives gold demand; it's the US policy rate. Secondly, central banks, including China's, are buying gold internationally, using their dollar reserves. This move boosts confidence in their currencies during periods of local currency weakness. Thirdly, the dollar and gold often rise together during uncertain times, serving as portfolio hedges. Finally, China's gold demand remains steady despite yuan depreciation, thanks to expected broader easing measures.
And the evidence? China has been secretly buying gold at a rate ten times higher than officially reported. This revelation, made by Thomas, has been validated by subsequent data. Retail investors have also aggressively entered the gold market, with ETF purchases providing significant support.
But the real shocker? China's tradition of secrecy. It's buying up most of the available gold in the open market, likely in anticipation of a major event. This claim faced pushback, with critics questioning China's strategy. However, recent reports from the Financial Times confirm what Thomas predicted a year ago: China's gold purchases are indeed far beyond official figures, as part of its de-dollarization strategy.
The FT's analysis, supported by Société Générale, estimates China's total purchases this year could reach a staggering 250 tonnes, accounting for over a third of global central bank demand. This scale of unreported purchases poses a challenge for traders trying to predict gold's next move.
Jeff Currie, chief strategy officer at Carlyle, sums it up: "China is buying gold as part of their de-dollarization strategy... Unlike oil, with gold you can't track it. There's just no way to know where this stuff goes and who is buying it."
The lack of transparency in official Chinese data has led traders to seek alternative sources. Bruce Ikemizu, director of the Japan Bullion Market Association, believes China's gold reserves are nearly 5,000 tonnes, double the official report.
China is not alone in this gold rush. Central banks worldwide are buying huge quantities of bullion, driven by the US weaponizing the dollar in response to the Ukraine war. Gold's share of global reserves outside the US has grown significantly, yet fewer of these purchases are being reported to the IMF.
In the most recent quarter, only about a third of official buying was publicly reported, a sharp decline from previous years. Central banks have their reasons for this opacity, from avoiding market manipulation to political sensitivities.
Michael Haigh, an analyst at Société Générale, describes the gold market as "unique and tricky" due to the impact of central bank tonnage movements.
China, the world's biggest gold producer and consumer, remains the least transparent. Analysts must rely on import data, guesswork, and tips to estimate its gold purchases.
Officially, China's State Administration of Foreign Exchange has bought just 25 tonnes this year. But estimates suggest Safe, China's foreign exchange regulator, will import about 250 tonnes, ten times more. Another method, used by Plenum Research, calculates a "gap" of 1,351 tonnes in 2023, more than six times China's public purchases.
While the exact numbers are unclear, one thing is certain: China will buy more gold than it officially reports. Safe has purchase targets, and current official holdings fall short. Purchases are made not only by Safe but also by China's sovereign wealth fund and military, with no disclosure requirements.
China's status as the world's largest gold miner adds another layer of complexity. It can buy bullion domestically for its reserves. But in a geopolitical move, China is also inviting developing nations to store their gold in the country, as seen with Cambodia's recent agreement.
Given these variables, many gold analysts refrain from guessing the true scale of PBoC purchases. Adrian Ash, research director of BullionVault, says, "It's ultimately unknowable... China's bullion market is an enigma."
One thing is clear: gold prices will continue to rise. In a recent note, Thomas, the Goldman gold analyst, writes that central bank buying is a multi-year trend, with banks diversifying their reserves to hedge risks. Goldman estimates gold prices to reach $4,900 by end-2026, with potential for even higher gains if private investor diversification accelerates.
This strategy, fueled by gold purchases, is a bold move with far-reaching implications. It's a game of shadows and secrets, where the true scale of China's gold accumulation remains a mystery, but one with potentially massive impact on the global financial system.
