China Likely Stockpiling Gold to Minimize Dollar Dependence
China is likely quietly stockpiling gold in a bid to further minimize its dependence on the US dollar.
Central banks globally added nearly 400 tons of gold in the third quarter, according to data compiled by the World Gold Council. This was 300% higher than Q3 2021 and came in as the largest quarterly increase in central bank gold reserves since the World Gold Council started keeping records in 2000.
Central banks in Turkey, Uzbekistan, Qatar and India were all big buyers in Q3, but their reported purchases make up only a fraction of the total. A large percentage of the Q3 sales – nearly 300 tons – were not officially reported. They came from a mystery buyer or buyers.
The question is who is secretly buying gold?
There is some speculation that the weaponization of the dollar to punish Russia for the invasion of Ukraine has motivated some countries to diversify away from the dollar. Less exposure to the greenback means less exposure to diplomatic and economic pressure from Washington DC.
Turkish-based Japanese economist Emin Yurumazu told Nikkei Asia, “Seeing how Russia’s overseas assets were frozen after its invasion of Ukraine, anti-Western countries are eager to accumulate gold holdings on hand.”
Some speculate that Russia might be behind the surge in central bank gold buying, but according to a report by Nikkei Asia, China is the most likely candidate. Market analyst Itsuo Toshima told the financial newspaper, “China likely bought a substantial amount of gold from Russia.”
This transaction makes sense. With its ongoing war and economic sanctions, Russia likely needs currency, and China would benefit from larger gold reserves as it tries to minimize its dependence on dollar reserves.
Finbold News cites Chinese customs officials who said Chinese imports of gold from Russia skyrocketed in July. They reported a more than eightfold increase in the month with approximately 50 times the amount of gold arriving from China compared to the previous year.
China has a history of secretly accumulating gold. For instance, in 2009, the People’s Bank of China stopped reporting its gold holdings. Then in June 2015, the Chinese central bank suddenly announced its gold hoard had grown by 57%. For the next 16 months, the PBOC regularly announced additions to its gold reserves. Chinese gold holdings rose another 185 tons before the Chinese central bank suddenly went silent again. It hasn’t reported any increase in its official gold reserves since late 2016.
Many analysts believe China holds far more gold than it officially reports. As Jim Rickards pointed out on Mises Daily back in 2015, many people speculate that China keeps several thousand tons of gold “off the books” in a separate entity called the State Administration for Foreign Exchange (SAFE).
We don’t know for sure if China is secretly hoarding gold, but we do know the Chinese are shrinking their dollar exposure. China has been aggressively selling its US Treasury holdings.
Since the US invaded Ukraine at the end of February, China has sold just over $121 billion in US Treasury bonds, according to data from the Federal Reserve.
Why do the Chinese want to hold gold and what’s the big secret? And why do they want to de-dollarize their reserves? It all comes down to economic power.
Gold offers countries some measure of independence from the US dollar. That means more political and economic independence and stability. Gold could even play a key role in a strategy to dethrone the greenback.