Who Is Buying All the Gold?

Safe haven buying of gold has been strong ever since 2020. But in recent years it hasn’t just been investment demand that has boosted the gold price, it’s also been demand from central banks.

China in particular has been one central bank that has consistently purchased gold over the past several years, continuing to add to its stores. But there are some curious questions that are starting to be asked about just how much gold is actually going to China.

Major Takeaways

• 2,700 tonnes of gold have gone “missing” in China over the past two years
• China consumes about 25% of world gold supply
• Chinese gold demand is starting to drive the market

Chinese Gold Demand

We do know how much gold is going to China, or at least how much gold should be going to China. Between China’s gold production and its gold imports, China is one of the biggest buyers of gold.

There has long been speculation that the Chinese government and central bank, however, aren’t disclosing the full size of their gold purchases. According to these theories, the Chinese government is trying to create a gold-backed currency to rival the dollar, and is therefore deliberately trying to understate its gold purchases and gold holdings so as not to arouse suspicion.

Officially, China holds 2,264 tonnes of gold, making it the sixth-largest holder of gold, behind the US, Germany, Italy, France, and Russia. But if China were surreptitiously adding to its gold reserves without telling anyone, it could actually be rocketing up the list.

China used to be famously tight-lipped about its official gold reserves. In 2015 it announced a 600-tonne increase in its reserves, its first disclosure since 2009.

But while China has been more transparent since then, there are still people who don’t believe that the government is being fully forthcoming about just how much gold it is sitting on.

A recent article on ThinkChina pointed out some interesting discrepancies in China’s official gold reporting data. According to official figures, total Chinese gold demand, from individuals, banks, and the government, came to about 431 tonnes.

Meanwhile, total gold production plus total gold importation came to around 1,775 tonnes. Even if every single bit of gold produced was exported, there would still be a gap of almost 1,000 tonnes between officially reported gold purchases and gold importation.

And if all of Chinese gold production is staying in China, which is more likely, there is a more than 1,300 tonne gap between official purchases and total gold supply. Where has all that gold gone, and who bought it?

This isn’t just a recent problem either. In 2022 there was another 1,400 tonne gap between officially reported gold demand and total gold supply. That’s nearly 2,700 tonnes of gold that has “disappeared” in two years.

If the Chinese government were scooping up all that gold, and not reporting it, it would have close to 5,000 tonnes of gold, making it the world’s second-largest holder of gold.

These discrepancies are what give rise to the theories that China is actually accumulating more gold than it lets on. Perhaps its officially reported purchases are only those of gold on international markets, or of Good Delivery bars, and its purchases of other forms of gold aren’t being reported?

And then if those other forms of gold were refined into bars they might be accounted for differently? There’s no way to tell for sure, but those 2,700 tonnes of gold didn’t just disappear.

They’re still in China somewhere, and someone bought them. It may just be a matter of time before we find out exactly who that was.

China’s Gold Demand Driving the Market

Regardless of who owns that gold, it’s clear that China is increasingly becoming a major driver of international gold flows and therefore also of the gold price. China’s gold consumption means that the country is responsible for taking up about 25% of the total supply of gold each year.

With exports of gold being negligible, China is almost like a black hole for gold. Thousands of tonnes of gold enter China every year, never to return.

That’s why the thought of China secretly amassing a hoard of gold is so easy to believe. Given China’s known gold consumption plus the previous secrecy of the government, the idea that China might be secretly stockpiling gold in order to fund a new currency to take down the dollar seems completely plausible.

China and the Future of Gold

Whatever is going on in China, it’s clear that China is going to play an increasingly important role in gold price movements. With India already a major player thanks to its tradition of gold ownership, much of the movement in gold prices in the future could end up being the result of events in Asia.

For investors who are used to seeing the US economy and events in the US being the major driver behind price movements in numerous markets, that could come as a shock. And if you’re looking to buy gold, you might want to pay attention to what China is doing, as it could be just as important as what is happening here in the US.

If Chinese gold consumption remains as strong as it has been in recent years, it could provide continued support for the gold price, keeping it elevated for quite a while. And it could keep the current bull market in gold going for years.

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