China has purchased 62 tons of gold in the past two months—raising theories about what the country hopes to accomplish by stockpiling.
Key Details
- China’s decision to rescind its Zero-COVID policy and open the borders has been met with a mixed reception. Global business has welcomed loosened restrictions with one of the world’s largest trading partners, but the CDC is heavily restricting travel to prevent further COVID-19 variants from breaking out.
- As the economy continues to face political unrest and stress, the Chinese government is beginning to increase its gold holdings—for the first time in several years. The country has increased its holdings for two months in a row and now holds 2,010 tons of gold.
- The purpose is unclear, but it may be a move to stabilize the Chinese Yuan in the face of foreign aggression, foreign economic troubles, and internal pressures from rioting, political unrest, and COVID-related economic stressors.
Why It’s Important
China has faced months of economic and political unrest, and its demographic and economic predictions are trending negatively. Major companies like Apple are beginning to divert iPhone production from mainland China after its factories became a political contention and rioting spot. As the country faces more internal and external pressure, its purchase of gold may be a ploy to make its finances more resilient.
Gold is one of the most stable investments and having a large supply is an effective way to bolster one’s economic security and savings. As Bloomberg notes, China and other Asian countries have been “replenishing their war chests amid waning dollar strength.” It is ultimately unclear what China’s purpose for the purchase is, although analysts speculate that the country may be trying to divest from the U.S. dollar.
Suisse Gold suggests it could be a move to back its national currency with gold, making it more solid and stable. South China Morning Post suggests that the U.S. economy’s troubles could bleed into China if it doesn’t diversify its holdings.
Notable Quotes
“Seeing how Russia has been hit by monetary sanctions by the West, China and some other countries must be hurrying to reduce dependence on the dollar,” says NikkeiAsia.
“Gold is often a preferred choice when global markets become increasingly volatile and the threat of a worldwide economic recession looms,” says South China Morning Post.
“For China, the need to find an alternative to dollars, which dominate its reserves, has rarely been greater. Tensions with the US have been high since measures taken against its semiconductor firms, while Russia’s invasion of Ukraine has demonstrated Washington’s willingness to sanction central bank reserves,” says Bloomberg.