US-China tensions are causing a shift in global gold market dynamics.<\/p>\n
Escalating trade tensions with the US have prompted China to take a defensive stance economically. This has become a major gold price<\/a> driver in 2025 and that trend is expected to continue in the years ahead. <\/p>\n The widening gap between the two nations, which is based on a series of issues, from Taiwan independence and dominion in the South China Sea to currency manipulation and trade deficits, is creating the types of headlines that drive investors, institutions and central banks to move more of their wealth into gold. <\/p>\n \u201cThis tension underscores our key strategic driver for gold this year, which is market risk\/uncertainty,\u201d Joe Cavatoni, senior market strategist, Americas, at the World Gold Council, told the Investing News Network (INN) via email. <\/p>\n \u201cThe longer the tension and trade discussions continue, the more risk and uncertainty play into asset performance. Gold benefits significantly in this type of environment,” the expert added. <\/p>\n China\u2019s response to this heightened geopolitical and economic competition with the US has not been one of direct confrontation; rather, the Asian nation\u2019s leadership has taken its usual profoundly pragmatic and strategic approach. <\/p>\n As it so happens, gold is playing a key role. China has already established itself as the world\u2019s largest producer and consumer of gold, and is now looking to exert more control over the price. <\/p>\n Here INN takes a deeper look at three key ways China is using gold strategically in 2025 as part of a broader effort to out-maneuver the US on the global stage.<\/p>\n 1. PBOC shifting from US treasuries to gold<\/p>\n The People\u2019s Bank of China (PBOC) has continued to increase its gold reserves for the third consecutive year in 2025, although its acquisitions are coming at a slower pace<\/a> in recent months. <\/p>\n The World Gold Council reported in July<\/a> that China\u2019s official gold holdings have posted gains for eight consecutive months, with H1 2025 gold purchases coming in at 19 metric tons. Second only to the National Bank of Poland as one of the largest central bank buyers, China\u2019s gold purchases have no doubt contributed to gold\u2019s price.<\/p>\n The PBOC\u2019s focus on increasing its gold reserves is not surprising given the current fiscal landscape.<\/p>\n \u201cChina is a large, growing economy and has a meaningful reserve portfolio that is actively managed as part of central programs and planning. The PBOC is principally responsible for managing that portfolio, which has traditionally held large portions in USD and USD-based assets (treasuries),\u201d explained Cavatoni. <\/p>\n \u201cWhat the increased level of disclosed and undisclosed purchases you see in our data indicates is that the PBOC is looking at domestic and foreign market conditions for managing their reserves in an optimal way. That includes recognition of the role gold can play in a portfolio and finding that role a key focus for growth.\u201d<\/p>\n Charles-Henry Monchau, chief investment officer at Syz Group, believes the PBoC\u2019s bullion purchases are a part of a larger strategy moving away from the nearly century-long hegemony of the US dollar over global trade and finance. <\/p>\n \u201cIn its place, China is betting on a dual foundation: gold and the yuan,\u201d Monchau asserted recently<\/a>, also insisting that China\u2019s reduction of its dependence on the greenback is \u201cnot merely a matter of a portfolio rebalance.\u201d<\/p>\n In this way, China would gain a more dominant position in global finance and no longer be at the mercy of US sanctions and other financial pressures. Monchau also lends credence to the claim of some analysts that the PBOC is underreporting its gold purchases to the International Monetary Fund.<\/p>\n “This opacity is deliberate\u2014by quietly shifting reserves from dollars into gold, China avoids alarming markets while progressively building leverage,\u201d he said.<\/p>\n 2. China’s insurance sector buying gold<\/p>\n China’s insurance sector represents an emerging demand segment for physical gold, further demonstrating the yellow metal\u2019s function as a hedge against inflation and economic downturns.<\/p>\n In early February of this year, the Chinese government launched a pilot program<\/a> allowing the nation\u2019s 10 largest insurance companies to invest directly into gold. <\/p>\n Under the initiative, insurers can choose to allocate up to 1 percent of their assets to gold. This could open the door for up to 200 billion yuan, or more than US$27 billion, to enter the global gold market, as reported by Bloomberg<\/a>.<\/p>\n China’s insurance sector is the second largest in the world<\/a> behind the US, and if the pilot program is successful, it could serve as a precedent for other countries to allow similar programs to develop in their own insurance industries.<\/p>\n \u201cThis is an exciting development as it demonstrates both government and institutional understanding of gold, and provides an appropriate format for these institutions to build up the appropriate infrastructure and capabilities to add gold to diversified portfolios,\u201d said Cavatoni, emphasizing the significance of the move. <\/p>\n \u201cThis will be an additional use case to consume gold and good for the global market. This practice is also capable of being rolled out in pilot programs elsewhere and may (in certain places) already exist.\u201d<\/p>\n Back in March, four of the participating insurance companies announced their intention<\/a> to obtain membership in the Shanghai Gold Exchange. \u201cThat’ll give them access to the four nines contract (AU9999) that the Shanghai Gold Exchange trades,\u201d said Cavatoni during an interview with INN<\/a> at the time. <\/p>\n The Shanghai AU9999 contract<\/a> is a physical gold trading contract that closely tracks the spot price of gold.<\/p>\n \u201cIt signals, for us, global use cases continuing to come online. And I think that\u2019s actually the big story for gold, which is continuing to see people wanting access to it, industries having a need for it and impediments being removed.\u201d<\/p>\n 3. Shanghai Gold Exchange expansion<\/p>\n China is now making it easier for international investors to participate in the Shanghai Gold Exchange.<\/p>\n In late June, the exchange launched two new yuan-denominated gold contracts for physical delivery in Hong Kong, where it opened an offshore gold warehouse<\/a> in Hong Kong run by the Bank of China. <\/p>\n It also waived storage, handling and exit fees<\/a> for the calendar year for foreign buyers. Analysts see this as a major move toward strengthening China\u2019s position in the global gold market.<\/p>\n Mario Innecco, who runs the maneco64 YouTube channel, sees the expansion of the Shanghai Gold Exchange as \u201chighly significant\u201d in moving the center of the gold market to China.<\/p>\n \u201cThe reason why I think China is opening up the Shanghai futures exchange to foreign investors is that it’s all part of internationalizing their currency more and also making it more trustworthy,\u201d explained Innecco in a June interview with INN<\/a>. He also noted that the Shanghai Gold Exchange is also reportedly opening a vault<\/a> in oil-rich Saudi Arabia.<\/p>\n \u201cThis is an interesting development and one that is broadening an already open channel for approved foreign entities,\u201d said the World Gold Council’s Cavatoni in an email. \u201cIf the expansion continues beyond what we have today, including the most recent announcement around vaulting overseas, the foreign community might become more active in what is currently a smaller portion of the domestic China gold market.\u201d<\/p>\n There is also potential for strengthening the global position of renminbi. <\/p>\n \u201cThe new vault will significantly boost offshore RMB liquidity by enabling gold transactions in yuan rather than dollars,\u201d said Doris Bao<\/a>, founderof Gold Harvest Consulting and an advisor to the London Bullion Market Association (LBMA). \u201cThis also means China can now import gold using its own currency.\u201d<\/p>\n Innecco also believes a stronger Shanghai Gold Exchange internationally could prove highly disruptive to the western gold futures market represented by the COMEX and the LBMA. <\/p>\n “I think gold and silver will be priced from China in the next few years,\u201d he added.<\/p>\n