China has built up a gold stockpile worth $170 billion (£135 billion) after a record-breaking buying spree. This is fueling fears that Beijing is preparing its economy for a possible conflict over Taiwan.
According to the World Gold Council, the People’s Bank of China (PBOC) bought 27 tons of gold in the first three months of the year, increasing its reserves to a record high of 2,262 tons.
China has now been buying gold continuously since October 2022, marking the longest buildup of the precious metal since at least 2000. The 17-month streak has increased its gold reserves by 16 percent.
Gold is currently trading near a record high of $2,343 an ounce, putting Beijing’s stockpile at $170.4 billion.
Experts said China’s stockpiling was likely an attempt to protect its economy from Western sanctions in the event of a conflict over Taiwan.
Jonathan Eyal, deputy director at the Royal United Services Institute (RUSI), said: “The relentless purchases and sheer volume are clear signs that this is a political project being prioritized by the leadership in Beijing due to emerging developments “Confrontation with the United States.
“Of course it is also related to plans for a military invasion of Taiwan.”
President Xi Jinping has repeatedly stated that he wants to “reunify” China with Taiwan. In his New Year’s address, he said it was inevitable that the island nation would fall under Beijing’s rule.
Taiwan is a long-time U.S. ally and President Joe Biden has signaled he would be willing to send American troops to defend it in the event of an invasion.
MP Sir Iain Duncan Smith, co-chair of the Inter-Parliamentary Alliance on China, said of the gold stockpiling: “If they get much closer to Taiwan and countries start moving their investments out of China, that will give them some cushioning, to some to be able to overcome the difficulties.”
China’s central bank began buying gold shortly after Western nations froze Russian foreign reserves held at foreign central banks in response to the all-out invasion of Ukraine. Western sanctions wiped out $350 billion worth of Moscow’s foreign currency.
Mr Eyal said: “There is absolutely no doubt that the timing and sustainability of purchases is part of a lesson we are learning.” [China] has drawn from the Ukraine war.”
He said China would likely build up gold reserves to protect itself from dollar sanctions if it gets into a major confrontation with the West.
Mr Eyal added: “It was a big shock that it was possible to take over and freeze state assets. “I think that was a fundamental change for Xi Jinping.”
According to the World Gold Council, China has increased the share of gold in its total financial reserves from 3.2 percent to 4.6 percent since October 2022. The country now has the sixth largest gold reserves in the world, just behind Russia.
John Reade, chief market strategist at the World Gold Council, said: “Sanctions against Russia’s central bank following Russia’s invasion of Ukraine in 2022 have made it clear to politicians and reserve managers that they are at greater risk than they perhaps thought.” .
“If you offend the Western powers, you could lose access to your foreign exchange reserves.”
Beijing’s stockpiles are dwarfed by those of the United States, which has the largest reserves in the world. US holdings are worth $602 billion, while the UK holds $23 billion of the precious metal.
Mr Eyal said China’s urgency was clear as it was buying up large amounts of gold while prices were at historic highs. Its price has risen by almost a fifth in the last year and has reached an all-time high in recent weeks. The increase coincided with fears of an escalation in the conflict in the Middle East.
President Xi has not only accumulated gold reserves, but also promoted self-sustaining agriculture in China. The PBOC also sold its holdings of US Treasury bonds.
Mr. Eyal said: “The most important thing is the determination to be self-sufficient, both food and financial, to withstand a long-term confrontation with the United States.” I don’t mean months, but years of confrontation with the United States, as it is West currently has with Russia.”
American military officials have warned that China wants to have the military capability to invade Taiwan by 2027.
According to the World Gold Council, central banks worldwide bought more gold in the first quarter of 2024 than at any other start of the year on record.
High inflation has been a key driver, but central banks in emerging markets are also increasing their purchases of gold as an alternative store of wealth to the US dollar, Mr Reade said.
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