As the Chinese proverb goes: “Real gold does not fear the test of fire.”.The People’s Republic of China is on a gold buying spree, raising questions about how it plans to use its stash of the world’s most precious metal — and why..The World Gold Council reported this week that the Chinese Central Bank increased its reserves by about 29 tonnes in August, the ninth consecutive month of purchases..It now becomes the world’s sixth-largest gold holder, behind Russia and ahead of Switzerland.. China’s gold reservesChina’s gold reserves are growing at alarming rate. .Its total reserves now amount to 2,165 tonnes, about 10% higher — 217 tonnes — than it had in November when the buying spree began..Meanwhile, its total foreign currency reserves — mostly US greenbacks — fell by about US$44.2 billion to $3.16 trillion, according to Bloomberg data..And those are just the reported figures. Many analysts speculate China hoards several thousand tonnes in a separate and undisclosed reserve “off the books” entity called the State Administration for Foreign Exchange..Some observers say the true figure could be twice as much, or more than 5,000 tonnes. The US is by far and away the largest gold holder in the world, with 8,133 tonnes.. World gold reservesWorld gold reserves .That said, China rarely reports gold purchases. The last time it did so was in 2019 and before that, in 2016. Which makes its sudden surge of forthrightness all the more puzzling..It comes as China and other BRICS nations attempt to diversify away from the US dollar as the world’s reserve currency..In August, the loose alliance of Brazil, Russia, India, China and South Africa admitted a half dozen new members, doubling its size: Iran; Egypt; the United Arab Emirates; Ethiopia; and Argentina..Together they represent about 40% of the world’s population. On Sunday, Venezuelan President Nicolas Maduro said he wants to join too..One of the topics up for discussion at the BRICS summit in South Africa last month was the possibility of a common gold-backed currency as a way of breaking Western domination of the financial system..That is being increasingly underscored by Russia’s war in Ukraine, and the role ‘dollarization’ of the global economy has played in enforcing economic sanctions on everything from Muscovite oil and natural gas to foodstuffs and fertilizer — even Russian made vodka..In fact, experts warn China’s buying patterns are eerily reminiscent of Russia’s own gold purchases prior to its invasion of Crimea in 2014, suggesting that it may in fact be preparing for war over Taiwan..Before invading Ukraine, Russia attempted to de-dollarize and stockpiled both gold and Chinese yuan. Now China too, is negotiating trade deals outside the US greenback and stockpiling its own hoard of the yellow metal..A decade ago, Russian strongman Vladimir Putin quipped: “The more gold a country has, the more sovereignty it will have if there’s a cataclysm with the Dollar, the Euro, the Pound, or any other reserve currency.” .China’s buying spree coincidentally began in November, when Chinese leader Xi Jingping infamously urged the People’s Liberation Army “to focus all its energy on fighting.” He repeated it again on Sunday, according to the Communist Party’s English-language mouthpiece, the People’s Daily..In his classic The Art of War, Sun Tzhu wrote: “Engage people with what they expect. It is what they are able to discern and confirms their projections. It settles them into predictable patterns of response, occupying their minds while you wait for the extraordinary moment — that which they cannot anticipate." .While wars and rumours of wars can’t be fully discounted, there may be another factor at play, namely China’s growing real estate default crisis. .Gold is a natural hedge against inflation — and rising interest rates — and the Chinese government may instead be planning on using its reserves to bail out its banking sector the way Western governments did during the financial crash of 2008.
