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China ‘likely’ stockpiling gold to lessen reliance on US dollar

China is likely stockpiling gold to lessen reliance on US dollar
Jordan Major

This year, central banks have been on a buying frenzy for gold, but it is unclear which ones are responsible for most of that spending, which has fueled speculation that China is a major participant.

Analysts believe that China and perhaps other nations, seeing how Russia has been affected by monetary sanctions imposed by the West, must be making haste to minimize their dependency on the dollar, according to a report by Nikkei Asia.

Central banks purchased a net amount of 399.3 tonnes of gold from July through September, an increase that more than quadruples the previous year’s figure, per a study published in November by the industry group the World Gold Council.

Q3 2022 gold buying. Source: World Gold Council

Huge purchase increase in Q1 and Q2

The most recent sum is a significant increase compared to the 186 tonnes recorded in the previous quarter and the 87.7 tonnes recorded in the first quarter. At the same time, the year-to-date total alone exceeds any year recorded since 1967.

A number of buyers, including the central banks of Turkey, Uzbekistan, and India, announced acquisitions of 31.2 tonnes, 26.1 tonnes, and 17.5 tonnes, respectively. The issue is that these indicated purchases only amount to around 90 tonnes, which means it is unknown who purchased the approximately 300 tonnes net that is still outstanding. 

Regarding the anonymous purchasers, rumors abound. Emin Yurumazu, a Japan-based economist from Turkey, stated:

“Seeing how Russia’s overseas assets were frozen after its invasion of Ukraine, anti-Western countries are eager to accumulate gold holdings on hand.’

Elsewhere, market analyst Itsuo Toshima said: “China likely bought a substantial amount of gold from Russia.” In the past, China has engaged in behavior quite similar to this. After being silent since 2009 over its gold holdings, Beijing shocked the market in 2015 when it disclosed that it had increased its reserves of gold by almost 600 tonnes. Since September 2019, there have been no reports of any activity. 

According to Toshima, the People’s Bank of China most certainly purchased a part of the gold reserves held by the Central Bank of the Russian Federation, which total more than 2,000 tonnes.

China sells US bonds

After the 2008 financial crisis weakened trust in US Treasury bonds and other dollar-denominated assets, central banks and government institutions have steadily built up their gold holdings to diversify their portfolios.

China has also been selling its holdings of US bonds recently. According to the United States Treasury Department, it sold $121.2 billion in United States debt, roughly the equivalent of 2,200 tonnes of gold, between the end of February — immediately after Russia’s first attack on Ukraine — and the end of September.

According to the customs officials in China, Chinese imports of gold from Russia skyrocketed in July, increasing by more than eightfold on the month and coming in at approximately 50 times the amount from the previous year. It’s also worth mentioning that data presented by Finbold indicates that China and India accounted for 60.53% of the world’s gold jewelry market in 2021 by tonnes of gold sold. 

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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