(Kitco News) – China’s massive and sustained central bank gold purchases are raising fears that the country may not only be shoring up its currency but may also be laying the economic groundwork for a full-scale invasion of Taiwan, according to a Telegraph report published Tuesday.
“The relentless purchases and the sheer quantity are clear signs that this is a political project which is prioritised by the leadership in Beijing because of what they see is a looming confrontation with the United States,” Jonathan Eyal, associate director of the Royal United Services Institute (RUSI) in the UK, told the newspaper. “Of course, it’s connected also to plans for a military invasion of Taiwan.”
China’s gold-buying spree began in October 2022, building up its official reserves to a record high of 2,262 tonnes, valued at $170.4 billion at current prices. The People’s Bank of China (PBOC) added 27 tonnes of gold in just the first three months of 2024.
The PBoC’s current purchase streak came shortly after the United States and its Western allies froze $350 billion in Russian currency reserves held at foreign central banks in response to its invasion of Ukraine.
“There is absolutely no question that the timing and the sustained nature of the purchases are all part of a lesson that [China] have drawn from the Ukraine war,” Eyal said, adding that China’s burgeoning gold reserves are an attempt to insulate the country from the impact of U.S. dollar sanctions if and when it launches its own invasion.
“It was a major shock that it is possible to take sovereign holdings and freeze them,” Eyal said. “I think that was a fundamental change as far as Xi Jinping was concerned.”
President Xi Jinping devoted a part of his New Year’s address to the nation to calls for reunification with Taiwan.
“China will surely be reunified, and all Chinese on both sides of the Taiwan Strait should be bound by a common sense of purpose and share in the glory of the rejuvenation of the Chinese nation,” Xi said at the time.
Sir Iain Duncan Smith is the co-chair of the UK Inter-Parliamentary Alliance on China. “If they get much closer to bullying Taiwan and countries start to move their investments out of China, [the gold reserves] will give them a bit of padding to be able to ride through some of the difficulties,” he told the newspaper.
According to the latest figures from the World Gold Council, gold’s share of China’s total reserves has risen from 3.2% in October 2022 to 4.6% as of March. The China now boasts the sixth-largest sovereign gold reserve in the world, just behind Russia.
“The sanctions placed upon the Central Bank of Russia following the Russian invasion of Ukraine back in 2022 made politicians and reserve managers realize that they are more at risk than perhaps they thought they were,” said John Reade, chief market strategist at the World Gold Council. “If you offend the Western powers, then you can lose access to your foreign exchange reserves.”
Reade also acknowledged that while high inflation has been a key driver for gold’s recent rally, central banks in emerging economies are increasing their gold purchases in an effort to diversify away from the U.S. dollar.
Eyal said that China’s willingness to buy up enormous quantities of gold even as prices set new all-time highs is proof that they see the stockpile as an urgent priority. The PBOC has also been steadily selling its U.S. Treasury holdings.
“The most important thing is this determination to be self-sufficient in both food and finances to withstand a long-term confrontation with the United States,” he said. “I mean not months but years of confrontation with the United States, of the kind the West has with Russia at the moment.”
The World Gold Council noted that central banks bought more gold in the first quarter of 2024 than during any other such period on record. “Q1 saw no let-up in the pace of central bank gold buying,” the WGC wrote in their newly released Gold Demand Trends Q1 2024 report. “290t (net) was added to official holdings, only part of which is currently reflected in IMF data.”
