MW China may be secretly stockpiling gold. Why that spells trouble for the U.S. dollar.
By Myra P. Saefong
'Weaponization' of the U.S. dollar helped spur gold buying among global central banks
China's central bank has been buying physical gold to add to its reserves for at least the past three years - and there's growing speculation that the country may be purchasing even more of the metal in secret as part of a strategy to reduce its reliance on the U.S. dollar.
The ramp-up in gold purchases by the People's Bank of China (PBoC) began back in 2022 when Russia invaded Ukraine, Jan Nieuwenhuijs, gold analyst at Money Metals, told MarketWatch.
The West at the time froze Russia's foreign-exchange reserves - the U.S. dollar and euro . That was the "moment the dollar was weaponized in a way never seen before, which scared foreign central banks and spurred them to buy record amounts of gold," he told MarketWatch.
When the West froze Russia's foreign-exchange reserves in the wake of invasion of Ukraine in 2022, that was the 'moment the dollar was weaponized in a way never seen before, which scared foreign central banks and spurred them to buy record amounts of gold.'Jan Nieuwenhuijis, Money Metals
In 2022, the PBoC reported the first increase in its gold reserves since September 2019, according to the World Gold Council. But that does not mean the central bank made no purchases of the precious metal for its reserve between those time periods. That's because getting accurate data from China is widely known to be a challenge, as its government is known for its secrecy.
"Given how much gold it's buying, it's quite sensible for China to limit public disclosures where possible," said Stefan Gleason, president and chief executive at Money Metals. "After all, it's not in the interest of any bona-fide buyer to take actions that make its purchases more expensive than they need to be."
Official gold purchases
Still, data reported by China's central bank does show overall additions to its gold reserves in recent years - and analysts say there's good reason for that.
The PBoC reported total gold purchases of 62 metric tons in November and December 2022, lifting its total gold reserves to over 2,000 metric tons for the first time, according to the WGC.
The following year, the PBoC was the largest single gold buyer among central banks, adding 225 metric tons to its gold reserves in 2023 to total 2,235 metric tons, the WGC said.
And in 2024, the PBoC reported buying 44 metric tons of gold, with 29 metric tons of that purchased between January and April. Then, it did not report any changes to the gold reserves until buying resumed in November, the WGC said. It held 2,280 metric tons of gold, representing 5% of total international reserves, at the end of 2024.
China and other nations, "especially those that are not close allies of the U.S., want to reduce their reliance on the U.S. dollar for reasons beyond mere diversification," said Money Metals's Gleason, with those nations having seen the U.S. "weaponize the dollar against both Iran and Russia."
The global trade war also suggests that America will be pulling back from foreign trade, so there's "less reason for other nations to hold so many dollars," he said.
Since the start of this year, the U.S. dollar index DXY, which measures the value of the U.S. dollar to a basket of foreign currencies, has fallen by more than 9% as of Wednesday.
A report from the WGC released Wednesday showed that China's official gold holdings have risen for eight months in a row, through June. The central bank reported a 2 metric-ton purchase in June for total gold holdings of 2,299 metric tons.
When asked if the PBoC may be buying more gold than it's disclosing, Joe Cavatoni, market strategist at the WGC, acknowledged that there is ongoing discussion in the market about "whether the PBOC's reported purchases fully capture its activity."
However, the WGC has found that "China regularly provides reporting in line with the rules," he said. In some instances, it may be delayed, but it is "always adjusted to reflect the activity."
The WGC works with Metals Focus to aggregate data reported by the PBoC, in accordance with the International Monetary Fund guidelines, said Cavatoni. The WGC is "confident" that Metals Focus has "accurate numbers quarterly," he said.
Still, Cavatoni admitted that there is "always the case that maybe more is going on than is reported."
Covert transactions?
Indeed, it's possible there's more to the story of the PBoC's gold-buying than meets the eye.
Nieuwenhuijs told MarketWatch that he believes the PBoC, "in reality," held 5,065 metric tons of gold in its reserve at the end of 2024. That compares with the central bank's reported holdings of 2,280 metric tons in 2024, according to WGC data.
Nieuwenhuijs said he based his estimate on "unreported purchases" by central banks, as disclosed by the World Gold Council in its quarterly data. The WGC offers estimates for gold purchases that are not reported by central banks, using public data, trade statistics and other sources.
"China [is] importing much more gold than what is sold in the private market through the Shanghai Gold Exchange, and what industry insiders have shared with me over the years," Nieuwenhuijs said.
Direct gold exports from the U.K. to China "must reflect PBoC purchases," for one, because they continue to be elevated even when gold on the Shanghai Gold Exchange $(SGE)$ trades at a discount to London, he said.
He explained in a November 2024 article that when the SGE trades at a steep discount, gold imports into the domestic market are not bought by the private sector. It would not make sense for a bank to import gold to Shanghai to sell at a loss, he said.
Nieuwenhuijs brought up the idea that China was covertly buying gold for its central-bank reserves as far back as 2023, in an article for the Gold Observer.
His colleague Gleason at Money Metals pointed out that one of the "most compelling pieces of circumstantial evidence" that Nieuwenhuijis has uncovered is export/import data showing large gold flows into China at times when Shanghai was actually trading at a discount to London.
"In that environment, there would be no market incentive for big imports into China when gold is plentiful [and] cheaper locally," he said. "If large amounts of 400 [ounce] bars are exported to China from London at that time, it implies institutional buying for strategic reasons."
The power of gold
Whether Nieuwenhuijs's findings are true or not, China's interest in gold to build its central bank reserves is undeniable. So is the country's ability to move the gold markets, as the world's biggest producer of the metal, and one of its largest consumers.
Bart Melek, head of commodity strategy at TD Securities, said China would stock up on gold mainly to diversify its $3.3 trillion foreign-exchange reserve, of which only 6.7% is gold. This is to "protect against the erosion of purchasing power of the U.S. dollar," as China fears that the U.S.'s $37 trillion debt will "grow unsustainably quickly."
So "purchasing-power preservation, mitigating sanction risk and adjusting for less trade with the U.S.," as U.S. tariffs lead to less need for U.S. dollar holdings, are key reasons why China would want to move away from reliance on the greenback, Melek told MarketWatch.
Gold provides an asset which has "no counter-party risk, has intrinsic value and is an automatic inflation hedge," he said. Global central banks now hold 20% in gold in their foreign exchange reserves - the highest since the Bretton Woods monetary management system, said Melek. The pact signed in 1944 established a new exchange-rate system, pegging foreign currencies to the U.S. dollar, with the dollar, in turn, pegged to gold.
Nieuwenhuijs said gold is the "only asset that can replace the dollar as the prime world reserve asset" because, in part, it is liquid and has been used as a reserve asset for thousands of years.
Even so, gold hasn't been able to climb to fresh record highs. Prices for the most-active futures contract (GC00) had traded as high as $3,509.90 on April 22, marking a record intraday high on Comex.
The Federal Reserve's postponement of interest-rate cuts was the "excuse gold needed to take a breather and consolidate its massive gains over the past year," said Money Metals's Gleason.
The precious metal, however, is likely to head higher again.
"Putting aside a black-swan event like a war escalation, new weakness in the stock and bond markets and/or a lurch toward a dovish Fed are the most likely catalysts for higher gold prices," said Gleason. Fed Chairman Jerome Powell's days may be numbered - "and so is his stance against further rate cuts."
-Myra P. Saefong
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July 17, 2025 07:00 ET (11:00 GMT)
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