China Sheds Dollars, Buys Gold

In 2023, The People’s Bank of China (PBC, the central bank of the People’s Republic of China), as the central banking institution is called in China, purchased 225 tons of gold. According to the World Gold Council, this was the largest purchase of this kind since 1977.

China’s purchase of gold led to a 30% year-over-year increase in gold purchases in 2023. This is primarily due to the fact that PBC continued its policy of rapidly reducing the share of its reserves denominated in dollars. While China’s gold reserves have been rising, dollar-denominated gold reserves (mostly United States debt bonds) have declined by more than 10% over the past two years. According to PBC, China’s dollar reserves fell by 230 billion from the beginning of 2022 to November last year, dropping to $782 billion.

In 2023, the trend toward buying gold rather than U.S. bonds was a common financial policy not only for China and Russia, which accumulated 2350 tons of the precious metal at the end of last December, but also for many other countries. This was their reaction to the freezing and partial seizure by the United States and the European Union of 300 billion dollars of Russian funds deposited in the West. In addition, the gold race was fueled by growing global geopolitical tensions spanning from China to Taiwan, from Russia to Ukraine, from Israel to Palestine and the Red Sea. Global instability has pushed many other countries to invest in gold. For example, Poland purchased 130 tons of the “yellow metal” in 2023, while Libya purchased 30 tons.