China’s attraction to gold does not seem to be waning. The country’s gold reserves have increased to 2,410 tonnes in September 2026. China’s central bank, the People’s Bank of China, bought 23 tonnes of gold in September, the largest single-month purchase since October 2023. According to the World Gold Council, China has been increasing its gold reserves for 23 consecutive months. From January to September this year, it has added a total of 103 tonnes of gold. The question is, why is China buying so much gold?
According to WGC data, the PBoC bought a total of 63 tonnes of gold in the July-September quarter. This was the largest quarterly purchase since the third quarter of 2023. Gold accounts for 8.5 percent of China’s total foreign exchange reserves. Notably, China’s total foreign exchange reserves fell 2 percent to nearly $3.8 trillion in September. The main reason for this was the decline in the value of assets held in foreign currencies.
China has made these purchases at a time when gold prices fell in September. LBMA gold fell 8.5 percent in dollar terms and the Shanghai benchmark fell 5.5 percent in yuan terms. According to a WGC analysis, the reasons were rising yields on US Treasury bonds, tightening policy by the US Federal Reserve and a strengthening dollar. Despite this, there was a slight increase in gold prices throughout the quarter. Prices remained stable in early October and gold prices remained above $4,100 an ounce in the international market.
Efforts to reduce dependence on the dollar
According to analysts, China aims to reduce its dependence on the US dollar and make its foreign exchange reserves safer. Mike Mahre, an analyst at the Money Metals Exchange, says gold is an asset that is not the responsibility of any other country’s government. The value of assets held in dollars depends on the performance of that country and its financial system, while gold has no such risk associated with it.
Two major concerns are being articulated behind this strategy. First, America’s ever-increasing debt. The US finances a large portion of its spending by borrowing, and the dollar’s role as a global currency helps cover its budget deficit, but if governments and investors around the world lose interest in holding the dollar and US bonds, it could become more expensive for the US to borrow and put pressure on the dollar.
Wants to make Hong Kong a gold hub
China’s strategy is not limited to central bank purchases. They are trying to make Hong Kong a major global center for physical gold trading and payment settlement. Under this, gold holding capacity is being increased and futures traded in yuan and trading systems are being developed.
The currency in which gold is priced and paid in is very important. If a larger share of international gold trade begins to be denominated in yuan instead of dollars, the role of the Chinese currency in global trade may increase. This gives countries and businessmen another way to transact outside the dollar system.
Demand has also increased in the domestic market
Demand for gold in China has not only increased at the government level. According to the WGC, 11 tonnes of gold were added to the Chinese gold ETF in September. This was the third month in a row that their holdings increased. Total holdings in gold ETFs hit a record high of 304 tonnes. About $3.9 billion was invested in the third quarter.
This has been attributed to the need to diversify investments amid fluctuations in the domestic stock market and falling returns on government bonds. News of continued gold purchases by the central bank also boosted investor confidence.
However, the picture is not entirely rosy. China’s wholesale gold demand stood at 234 tonnes in the third quarter due to weak demand for gold jewellery. That is 21 percent lower than the same quarter last year and 44 percent lower than the last 10-year average.
The dominance of the dollar will not end anytime soon
Despite all this, the dominance of the dollar is unlikely to end soon, experts believe. The dollar is still an important part of global trade and finance. However, if this trend of diversification of foreign exchange holdings into various assets continues, foreign demand for dollar-denominated assets may decline in the long run.
Currently, China’s strategy of continued gold purchases has fueled debate about what the world’s financial system will look like in the future and whether gold can play a bigger role in reducing dependence on the dollar.
