The Gold of War

By Oleksandr Kramarenko, economic observer

 

Over the past week, major news agencies have nervously reported that China is ramping up its gold purchases for reserves. Some even suggest this signals preparations for a global conflict or war. In truth, this is only partly accurate. If anything, Poland’s recent moves in the gold market should be seen as the real red flag. That deserves closer attention.

Let’s turn to the facts. China is not leading the world in the absolute size of its gold reserves, in the pace of accumulation, nor in the share of gold within its international reserves.

According to the latest figures from the People’s Bank of China, in July its gold holdings rose from 2,298.5 to 2,300.4 tonnes. That places China only fifth worldwide – behind the United States (8,133.5 t), Germany (3,350.3 t), Italy (2,451.8 t), and France (2,437 t). These numbers mainly come from the World Gold Council’s Q2 data. Admittedly, gold statistics are slow to update, but they give us a reasonable picture.

Another useful indicator is the share of gold in total international reserves. And here, there is no sign of a “gold rush” in Beijing: the US holds  77.85% of their reserves in gold, Germany 77.5%, Italy 74.23%, France 74.96%, while China stands at just 6.7%. Globally, central banks keep on average 22% of their reserves in gold.

What about India? It holds only 880 tonnes of gold, about 13.08% of its reserves. Critics may argue that India is one of the largest gold buyers worldwide. True, but the bulk of this demand comes from jewellery producers and households, not the central bank.

For comparison, Ukraine’s international reserves include roughly 25.6 tonnes of gold, representing about 6.5% of the total reserves.

So, is China buying gold at breakneck speed? Not really. In Q1 this year it bought 9.95 tonnes; in Q2, 6.22 tonnes. That’s less than Poland (18.66 t), Kazakhstan (15.65 t), or Turkey (10.83 t) over the same period.

Kazakhstan buys heavily because it produces gold domestically. Turkey and Poland have pursued this policy since at least early 2023, though their pace has moderated this year. For instance, Turkey bought 15 tonnes in Q2 2024, and 30 tonnes in Q1 that same year. Poland raised the share of gold in its reserves from around 13% to 22% over the past 12 months, while Turkey jumped from 34% to 50%.

Is China, at least, accelerating its purchases? Again, no. Its monthly average in Q1 was 3.3 tonnes, in Q2 – 2.1 tonnes, and in July – 1.9 tonnes. This is well below its 2023 pace, when it bought 223.9 tonnes overall. Even the 44 tonnes purchased in 2024 represented a higher rate, despite Beijing pausing between May and October due to high prices. In fact, the price surge of 2023–24 was largely fuelled by China’s continuous buying from November 2022 to April 2024.

This year, Beijing is still buying despite prices rising 41% over the past 12 months. As a result, China increased the share of gold in its reserves from 4.9% to 6.7% in one year. It could have been higher, but there are plenty of problems in the Chinese economy that draw resources away.

The summary? Poland and Turkey are buying gold for security reasons. The Czech Republic has also joined in, adding more than 5 tonnes in Q2 this year. China would like to buy more, but high prices and domestic economic challenges limit its options.

Some experts argue Beijing’s gold purchases are part of a broader move away from dollar assets. Current estimates suggest the US dollar makes up about 57% of China’s reserves, and this share is slowly declining. Very slowly. Official data is scarce, so these figures may be somewhat uncertain.

Nonetheless, Beijing is actively working to reduce reliance on the dollar. Since 2015, China’s Cross-Border Interbank Payment System (CIPS) has allowed international transactions in yuan. Trade with Russia, for example, is now mostly settled in yuan. Over the past decade, the CIPS infrastructure has grown rapidly. In short, China is both slowly shifting the structure of its reserves and quickly building an alternative to the dollar in global trade. Gold is part of this strategy too, but China is buying it cautiously, not at any price.