China Accumulates Gold: What is Beijing Preparing?

China continues to accumulate gold at a steady pace. In July, the People's Bank of China (PBoC) added nearly 20 tons to its reserves, bringing its official holdings to approximately 2,366 tons. This marked the 21st consecutive month of purchases, indicating a strategy that is now long-term.

This Chinese demand helps support the strong momentum of the yellow metal, although it alone cannot explain the rise in prices. Beijing is part of a broader movement to diversify central bank reserves, which have been increasing their exposure to gold for several years.

These massive purchases are part of a larger strategy aimed at strengthening the international role of the yuan. According to a report from S&P Global Ratings published this week, Beijing is notably developing an international network of vaults for the storage and delivery of gold.

A first offshore site was inaugurated last year in Hong Kong as part of an agreement with the Shanghai Gold Exchange (SGE), which has simultaneously launched two gold contracts denominated in yuan. Singapore, Kuala Lumpur, Dubai, Riyadh, and Moscow could also join this network, allowing China to extend its yuan-denominated gold ecosystem beyond its borders.

The goal of this network is to address one of the barriers to the internationalization of the yuan. A country or company that agrees to be paid in Chinese currency must then be able to easily use the accumulated yuan. By developing places where these can be exchanged for physical gold, Beijing seeks to make its currency more attractive to its trading partners.

The importance placed on the yellow metal is also reflected in China's industrial policy. In 2025, Beijing reclassified gold, changing its status from a financial asset to that of "strategic mineral."

This decision is expected to particularly benefit the expansion of national groups like Zijin Mining and Shandong Gold Mining, which are projected to grow "faster than most of their global peers," according to S&P Global.

This framework aligns with other components of China's de-dollarization strategy. The country is developing its digital yuan backed by blockchain and promoting an alternative payment system within the BRICS framework.

Some observers remain cautious about the idea of a true "gold standard." China's M2 money supply is estimated to be around $49 trillion, while the PBoC's gold reserves would weigh in at around $300 billion, or less than 1% of M2. A true gold backing would require reserves 20 to 30 times higher.

Nevertheless, the underlying trend is evident. Several countries, including the United Kingdom, Japan, South Korea, and India, have reportedly reduced their positions in U.S. Treasury bonds to buy gold.

This remonetization of gold goes beyond just the Chinese case. In India, the yellow metal is taking on an increasing role in credit circuits. According to data from the Reserve Bank of India and the World Gold Council, gold-backed loans have been growing at an annualized rate of 42.4% since March 2024.

By the end of May, banks and non-banking financial companies held approximately $88.5 billion in retail loans backed by the precious metal. This phenomenon differs from China's monetary strategy but also illustrates the return of gold as a financial asset, no longer just as a store of value.