And the ancient proverb, “He who has the gold, rules”, would put China in the catbird seat in a world where currency is once again backed by gold. Why? – Because it’s got, by a wide margin, more gold than any country in the world. And China is continuing to add hundreds of tonnes of gold to its existing hoard every year, giving it a wider and wider margin of gold reserve holdings over other nations.

In this article, we’ll take a look at just how powerful China’s gold position in the world is and how its financial policy moves are pushing the world back toward a gold standard.

China’s Gold Hoard – Official Numbers versus Reality

Here, let me show you a joke:

‍

Do you see China, more than halfway down on that list, and with allegedly only about 2,000 tonnes of gold reserves? – That’s a joke. What makes it a joke? – It’s a joke because those are the official numbers, but they’re nowhere close to being the real numbers. The real numbers would show China topping that list by a long country mile. And the joke gets even funnier. That 1,948 tonnes figure showing for China remained totally unchanged from 2019 to 2022. Even while it was well known that China was ramping up its gold purchases by hundreds of tonnes each year, its “official” gold reserves number indicated that it hadn’t bought so much as a single ounce of gold in three whole years.

Precious metals experts who follow the gold market closely conservatively estimate that China has at least 20,000 tonnes in gold reserves – possibly close to 35,000 tonnes. That puts China’s gold holdings at somewhere between more than double and more than triple the 8,100 tonnes that the United States had as of 2021.

Gosh, how is that possible? – Easy. China doesn’t report even half of the mountain of gold it’s been buying up, at an ever-increasing pace, every year for more than two decades (basically since the turn of the century). Central banks of western nations have also started seriously stocking up on gold in just the past few years (are they foreseeing a return to the gold standard?), but they’re way behind the buying of China, Russia, and India.

The central banks of China and India – so that’s not even including another major gold buyer, Russia - are gobbling up more gold each year than the total annual amount of worldwide gold mining production. Thus, they are not only getting all the gold that’s being pulled out of the ground every year, but also buying up a significant amount of previous gold production. Add to that the sudden surge in gold buying by other nations and by institutional and private investors, and you have a demand-topping-supply situation that can only logically drive gold prices higher. And as the price of gold rises, so does the value of all the gold reserves that China has already amassed. 

(Note: The Chinese military also owns a large cache of gold, and it isn’t bothered by even having to officially report its purchases.)

China is the World’s Center of Gold Power

China has a built-in advantage in acquiring gold because it happens to be center of gold production in the world. For nearly 20 years now, ever since it snatched the top spot from South Africa in 2007, China has been the number one gold mining producer worldwide. In just the past ten years, it has accounted for approximately 15% of all gold mining production. And Shanghai holds the top spot as the world’s largest market for physical gold.

The picture for China’s massive gold acquisition gets even rosier. First, it hangs onto all the gold that it produces. The Chinese government doesn’t allow any of its domestic gold mining production to be exported. Second, more than 50% of all the gold that China produces is owned by the government. Third, China doesn’t just produce gold at home. Chinese mining companies have also made large investments in gold mining internationally, buying into gold mining projects in Africa, South America, and other countries in Asia. In fact, China’s gold production abroad outstripped its domestic production by a few tonnes in 2020.

Now, put all of those facts and figures together with the fact that China is estimated to have mined nearly 7,000 tonnes of gold since the year 2000. Yet, it supposedly only had gold reserves of 1,948 tonnes as of 2021. Like I said, that figure is obviously a joke.

But we’re still not done. That’s because, in addition to being the number one gold producer in the world, China is also the largest importer of gold worldwide. Just through the port of Hong Kong alone, China has imported more than 5,000 tonnes of gold since the turn of the century. And the Chinese central bank, the People’s Bank of China (PBoC) reported its 17th straight monthly purchase of gold in March of 2024. In January, 2024 alone, it reportedly acquired another 160 tonnes of gold – more than 100 tonnes more than it bought in December of 2023, and the largest level of gold buying in January that the Chinese have ever reported.

Chinese gold ETFs are also seeing a strong upsurge. Assets under management in China gold ETFs have soared by nearly 20% since the first of the year.

The chart below shows how Chinese gold importing, already strong, jumped significantly higher in mid-2022, and has stayed consistently strong. And, again, keep in mind that the chart only reflects the official numbers, not the real numbers that are undoubtedly much higher.

Chinese Gold Importing

In short, both domestically and internationally, China is sucking up gold like a sponge.

Demise of the Petro-dollar, Rise of the Petro-Yuan

It used to be the case that the Petro-dollar reigned supreme. Oil could only be purchased using US dollars, helping to buttress the dollar as the world’s reigning reserve currency. But recent years have seen the Middle East and BRICS countries moving away from the Petro-dollar system that had ruled the oil market for about the last 50 years. Saudi Arabia, Brazil, and Argentina (just to name a few) now all accept the Chinese yuan as payment for oil. In 2023, Pakistan, a previous adherent to the Petro-dollar system, opted to pay for 100,000 tons oil from Russian with yuan.

The shift away from the US dollar, and toward the Chinese yuan, by oil producers such as Saudi Arabia was a virtual inevitability. China is the largest importer of oil in the world – and its demand for oil continues growing, driven by an economy of approximately 1.5 billion people. Being the biggest buyer of oil gives China considerable clout in the oil market.

Additionally, in 2018, the Shanghai Futures Exchange added its first oil futures contract. A very interesting and important aspect of the contract was the fact that it could be settled in yuan…and the yuan settlements could optionally be converted into gold. That, in effect, made the yuan at least partially or implicitly backed by gold, at least as far as the oil market was concerned. That option to ultimately get gold in exchange for their oil may prove to be a very attractive one to oil producers, thus drawing more and more oil business to be conducted on the Shanghai Exchange.

There are now billions to trillions in oil money that previously went through New York banks and into US Treasury securities that is, instead, flowing through the Shanghai Futures Exchange and into the Chinese yuan and gold. This shift from oil-for-US dollars to oil-for-gold translates to China effectively pushing the world toward a gold standard.

‍

During a recent visit to Saudi Arabia, Chinese President Xi declared, “China will continue to import large quantities of crude oil from GCC countries, expand imports of liquefied natural gas, strengthen cooperation in upstream oil and gas development, engineering services, storage, transportation and refining, and make full use of the Shanghai Petroleum and National Gas Exchange as a platform to carry out yuan settlement of oil and gas trade.”

Former US Senator Ron Paul, a longtime critic of fiat currency, gave what now appears to be a very prophetic speech several years ago, entitled, “The End of Dollar Hegemony”. In it, he stated his belief about why the US dollar would eventually fall from its perch as the world’s major reserve currency – “The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros.”

The net effect of all of these global moves is to accelerate de-dollarization – the move away from the US dollar as the world’s major reserve currency – and to enhance the strength and status of the Chinese yuan as a global currency. Evidence of the dollar’s decline can be seen in statistics such as the fact that, just between 2020 and 2022, the number of US dollars held by foreign central banks declined by more than 10 per cent, from 70% down to 59%.

Fully aware of the US seizure of Russian financial assets at the start of the war with Ukraine, and being itself targeted by US trade sanctions, China has been moving strongly to reduce its exposure to the US dollar. It has significantly lowered its holdings of US Treasury securities in recent years. That’s a huge change since when it was one of the largest purchasers of US bonds back during the 2008 financial crisis.

China Moves the World Back Toward a Gold Standard - Summary

“He who has the gold, makes the rules.” China’s ascendancy toward becoming the overwhelmingly strongest economic power in the world is being fueled by the ever-increasing amount of gold that it has. 

China holds – by a wide margin – the largest amount of gold reserves in the world. And its gold holdings only continually to multiply as it continues both producing and importing gold on a massive scale. And as the price of gold continues rising higher, any dreams that other nations may have of catching up with China’s gold reserves steadily evaporate.

If China were to decide to pursue internationally weaponized financial policies similar to those that the US has frequently employed in the past several years, it might be able to absolutely demolish the purchasing power of the US dollar with just a few simple moves. All it would need to do is either declare the actual amount of gold reserves that it holds or officially back the yuan even partly with gold. Gold prices would likely go through the roof and the value of the yuan would skyrocket. In contrast, the value of the US dollar relative to the Chinese yuan would sink like a stone.

One of the few things holding the Chinese government back from making such moves is the fact that it still has exposure to trillions of dollars in US Treasury securities that it holds. A demolished dollar would totally tank the value of those securities. But we’ve already seen that China is in the process of shedding itself of US Treasuries.

China’s relentless 25-year accumulation of gold is cementing its global financial pre-eminence. And now that it has, by far, the largest amount of the world’s gold, its financial policy moves are pushing the world back in the direction of the gold standard. And while that may not be good news for the US, it’s great news for gold investors.

• J.B. Maverick

‍

Sources:

https://www.usfunds.com/resource/top-10-countries-with-largest-gold-reserves/

https://www.youtube.com/watch?v=-fKSJQYv_KY

https://moneyweek.com/investments/commodities/gold/603131/how-much-gold-does-china-own

https://news.goldseek.com/GoldSeek/1506949500.php

https://www.geopoliticalmonitor.com/de-dollarization-and-emergence-of-chinese-yuan/

https://oilprice.com/Energy/Crude-Oil/Gold-And-A-New-Crude-Benchmark-A-New-Dawn-For-The-Petroyuan.html

https://www.gold.org/goldhub/gold-focus/2024/04/chinas-gold-market-march-official-gold-reserves-rose-further-wholesale

‍