China's 23-Month Gold Buying Spree Aims to Boost Yuan's Global Role

This is a roundup of developments in China, led by gold purchases and efforts to expand global use of the yuan. China has bought gold every month for 23 months as part of a plan to narrow the gap with U.S. gold holdings. Hong Kong's development as a yuan-denominated gold trading center is supporting China's decades-long effort to internationalize the currency. The purchases and trading platform are the latest signs of diversification away from the U.S. dollar. Hong Kong last month confirmed efforts to develop a yuan-denominated gold market. Hong Kong last year linked its gold vault with a vault in Shanghai, allowing yuan-denominated physical gold delivery to international institutions in Hong Kong. Charles Chang, managing director and Greater China country lead for corporate ratings at S&P Global Ratings, described Hong Kong's planned vault expansion. Chang said Hong Kong plans to increase the Shanghai-linked vault's capacity from 150 tonnes to over 2,000 tonnes over the next three years. Chang said the planned capacity is nearly as large as China's entire gold reserves. Chang said completing the expansion would make Hong Kong one of the world's largest gold trading centers. Chang said growing trading volumes would increase physical gold trade denominated in renminbi rather than linked to U.S. dollars. Chang said finding places to use renminbi remains a challenge for internationalization. Chang said converting renminbi received by a buyer into gold would provide additional channels for spending. The yuan, also known as the renminbi, accounts for a fraction of international transactions in a financial system dominated by the U.S. dollar. Analysts do not expect major changes to that relationship anytime soon. World Gold Council figures for the second quarter put U.S. gold reserves at over 8,100 tonnes, the world's largest holdings. The same figures put China's holdings at over 2,300 tonnes, about one-third of U.S. holdings. Hao Zhou, head of research and chief economist at Guotai Junan International in Hong Kong, said China's 23-month buying streak reinforces the credibility of renminbi internationalization. Zhou said increasing gold reserves strengthens the long-term backing of China's financial system and reduces reliance on dollar-denominated reserve assets. Zhou said gold alone will not determine the renminbi's global role. Zhou said gold enhances confidence in the currency and supports broader use in trade, investment and official reserves. Xia Yingying, head of precious metals and new energy research at Hangzhou-based Nanhua Futures, said central-bank gold accumulation would reduce reliance on U.S. Treasurys and dollar reserves. Xia said the trend would reduce the dollar's premium as a core reserve currency. Xia said the trend would increase the dollar's risk premium associated with credit, fiscal policy and sanctions. Xia said the trend would gradually weaken the dollar's dominant position in the global reserve system over the medium to long term. However, U.S. Treasury Secretary Scott Bessent on Friday named gold-standard supporter Judy Shelton as a senior advisor focused on China. China's rise as a manufacturing powerhouse benefited from the U.S. decision to abandon the gold standard more than 50 years ago. Central-bank research group OMFIF wrote in 2021 that delinking the dollar from gold and the resulting oil-price rise made Western manufacturing less economic. OMFIF said capital moved to Asia seeking cheap labor and lower overall costs. China is the world's largest consumer and producer of gold. S&P said China is one of many developing economies that have expanded gold reserves since 2022. World Gold Council figures showed Poland has increased gold reserves by more tonnes than China. S&P Global Ratings said China has acquired major gold mines across Latin America, Africa and Asia. Chang said China's gold plans and activities are comprehensive and long-lasting, with trends that will continue for a number of years. Chang said markets often overlook the comprehensive nature of China's approach.