China's Gold-Buying Spree: Diversification, De-Dollarisation, and Geopolitical Impacts

The gold market has recently experienced a significant rally, with prices surpassing $2,450 per ounce in July, continuing a trend of strong performance that has persisted since late 2022. The increase in demand for gold has been driven largely by extensive buying activities, particularly in China, which has played a pivotal role in the global gold market. Despite a pause in recent months, China’s gold-buying spree, which began in late 2022, is expected to contribute to further gains in gold prices.

In 2023, China’s central bank led a large-scale gold acquisition, purchasing significantly more than any other central bank. Central banks collectively bought 1,037 tonnes of gold last year, with China accounting for the majority of these purchases. This trend continued into 2024, with China again leading gold acquisitions in the first quarter. The volume of gold purchased in this period was substantially higher than previous estimates, despite rising gold prices.

Although China produces more gold than any other nation, it has continued to import vast quantities of the precious metal. Over the past two years, the country has purchased over 2,800 tonnes of gold from international sources. Despite this intense demand, China's central bank temporarily paused its gold-buying activities in mid-2024, likely due to the sharp rise in prices. However, analysts expect this pause to be temporary, with geopolitical and economic factors continuing to fuel China’s demand for gold as a means of diversifying its reserves away from the US dollar.

China’s growing focus on gold is also linked to its efforts to reduce its reliance on US dollar-denominated assets. This trend is driven by escalating geopolitical tensions, trade disputes, and sanctions. Furthermore, China’s participation in the BRICS+ economic group, which aims to boost trade in local currencies, has strengthened its position as a major player in the global gold market. Discussions around a potential gold-backed BRICS currency further highlight the strategic importance of gold for the region.

As China continues to face economic uncertainties, including a property-sector crisis and volatile stock markets, gold remains an attractive investment option. The country's demand for gold is expected to grow, with investors seeking stability amid limited alternatives for investment.