China is swiftly narrowing the “gold gap” with the United States, amassing what is considered the world’s second-largest gold reserve. This move is largely under the radar but is gaining attention due to its scale and potential impact on global markets.
Unofficial estimates suggest that China’s gold reserves could be as high as 5,500 metric tons. This figure significantly exceeds the country’s officially reported holdings of 2,303.5 tons. If accurate, analysis from Australia’s ANZ Bank would place China second in the world for gold ownership. This would mean surpassing Germany’s 3,350.3 tons, although still trailing behind the U.S.’s substantial 8,133.5 tons.
China’s extensive gold acquisitions, both documented and undisclosed, have been a driving force behind the sharp increase in gold prices over the past three years. In the last year alone, gold prices have surged by 54%, reaching $4,038 per ounce.
The expansion of its gold reserves is a strategic element of China’s broader effort to reduce its reliance on the U.S. dollar. This initiative is multifaceted, including the establishment of a premier gold trading center through the Shanghai Gold Exchange (SGE) and easing restrictions on gold investments by Chinese insurance firms.
Chinese gold buying, reported and unreported, has been the major factor in the steep rise in the gold price over the past three years, including a 54% increase in the last 12-months to $4038 an ounce.
Building its reserves is just one part of China’s gold strategy which is part of a campaign to reduce exposure to the U.S. dollar.
Other features of the Chinese gold rush include the creation of a world-class gold trading hub centered on the Shanghai Gold Exchange (SGE) and the relaxation of rules governing investment in gold by Chinese insurance companies.
Jeff Currie, chief strategy officer of energy pathways at fund manager Carlyle, told the Financial Times newspaper that “China is buying gold as part of a de-dollarization strategy.”
ANZ, in its Vault research report, said China had been increasing its activity in the gold market by “accumulating reserves, enhancing trading infrastructure and promoting domestic and international participation”.
Gold Trading Hub
But the bank also warned that progress towards becoming a gold trading hub would be gradual due to the challenges in attracting international investors and central banks to hold their gold reserves in China.
“China is the largest producer and consumer of gold,” ANZ said in its report titled ‘China’s gold quest’.
“It is uniquely positioned to become a strong participant in the global gold market, especially when geopolitical uncertainty is prompting many nations to explore alternatives to the current monetary system.
“There has been a notable transition from physical gold buying to investment-driven demand since 2023.
“Trading volumes on the SGE and Shanghai Futures Exchange have surged, now approaching levels comparable to Comex (a division of the New York Mercantile Exchange).
“The SGE has launched its first offshore vault and CNH (offshore renminbi) denominated contracts to attract foreign investors.”
ANZ said China’s central bank is increasing its gold holdings to enhance trust in the country’s currency.
“To project China’s total gold reserves (reported and unreported, we calculate the market surplus by subtracting total demand (jewelry, bars and coins, exchange-traded fund and industrial) from total supply,” the bank said.
“We then assume 60% of this surplus is added the central bank’s reserve.
“Based on this, we estimate China’s total gold reserves exceed 5500 tons, which is more than twice the officially reported volume.”
