A shocking revelation about China's gold purchases has sent shockwaves through the financial world. It's a story of secrecy, strategy, and the power of gold in a world of shifting currencies.
One year ago, Goldman's analyst Lina Thomas made a bold prediction: gold prices would soar to $3000 by the end of 2025. And she was right, with prices surpassing her forecast. But the real story lies in the unreported gold purchases made by China, a nation with a ravenous appetite for the precious metal.
Thomas argued that the rise of gold prices and the strength of the dollar could coexist. She highlighted four key reasons why this was possible, emphasizing the role of central banks and their gold purchases, especially in times of local currency weakness.
And here's where it gets controversial: China, the world's largest gold producer and consumer, was secretly buying up massive amounts of gold. Our analysis back then, and subsequent reports, revealed that China's official figures were just a fraction of their actual purchases. They were buying 10 times more gold than they admitted!
But the story doesn't end there. Retail investors also jumped on the gold bandwagon, aggressively purchasing gold ETFs. This, combined with China's secret gold buying spree, validated the bullish thesis on gold.
Fast forward to the present, and the Financial Times (FT) has confirmed what we reported last year: China's gold purchases are far beyond their official figures. They are quietly diversifying away from the US dollar, and their de-dollarization strategy involves a significant accumulation of gold.
Jeff Currie, chief strategy officer at Carlyle, put it bluntly: "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."
And this is the part most people miss: official Chinese data is unreliable, at best. Traders have had to turn to alternative data sources, such as orders for specific gold bars, to get a glimpse of China's purchases.
Bruce Ikemizu, director of the Japan Bullion Market Association, believes China's gold reserves are nearly 5,000 tonnes, double their public reports. This trend is not unique to China; central banks worldwide have been buying up gold in response to the US weaponizing the dollar during the Ukraine war.
The result? Gold's share of global reserves outside the US has skyrocketed from 10% to 26% in the past decade. But fewer of these purchases are being reported to the IMF, making it increasingly challenging for traders to predict gold's next move.
Nicky Shiels, an analyst at Swiss refinery MKS Pamp, explained the political sensitivity of these purchases: "It makes sense to just report the bare minimum... Gold is seen as a pure USA hedge."
Michael Haigh, an analyst at Société Générale, described the gold market as "unique and tricky" due to the opacity surrounding central bank purchases.
China's lack of transparency leaves analysts guessing. Various methods, from import data to calculating production gaps, are used to estimate China's true gold purchases. One estimate suggests China bought 10 times more gold than officially reported, a number that rings a bell.
A former Safe official revealed that China has one-year and five-year targets for gold purchases, and their official holdings are far below these targets. The purchases are made not just by Safe but also by China's sovereign wealth fund and the military, entities not required to disclose their holdings.
China's status as the world's largest gold miner adds another layer of complexity. They can buy bullion domestically for their reserves, and they are also courting developing nations to store their gold in China, a clear statement of geopolitical power.
So, how much gold is China really buying? Many analysts refuse to guess, citing the enigma that is China's bullion market. Adrian Ash, research director of BullionVault, said, "It's ultimately unknowable."
But one thing is certain: gold prices will continue to rise. Lina Thomas, the Goldman analyst who predicted China's true purchases, estimates central bank buying of 64 tonnes in September, with continued accumulation expected.
Goldman predicts gold prices to reach $4,900 by the end of 2026, and even higher if private investor diversification gains momentum.
This story is a reminder of the power dynamics at play in the global financial system and the role gold continues to play as a hedge against uncertainty.
