China is attempting to leverage a record-breaking gold rally to advance its long-term goal of reducing global reliance on U.S.-centric financial systems. With nearly 1,200 tons of gold officially held, China has become a major bullion player and is expanding efforts to establish alternative gold trading and storage infrastructure, including offshore vaults in Hong Kong and the Shanghai Gold Exchange, according to Bloomberg. They write:
A scorching gold rally is helping China get one step closer to its goal of building a world less dependent on US-centric financial markets.
Beijing has already been accumulating reserves for a decade, building a bullion stockpile that is likely to be the sixth-largest in the world. […]
So far this year, Beijing has boosted Hong Kong’s role as a homegrown trading hub with the Shanghai Gold Exchange’s first-ever offshore vault. It has also sought to woo other nations to store gold in China’s bonded warehouses. Next it is expected to encourage central banks and sovereign funds to trade the metal they’ve stored, just as they do in London, chipping away at the world’s most established centers. […]
Gold can also satisfy China’s growing interest in alternative assets as a way of battling dollar dominance, with even stablecoins — digital tokens pegged to traditional currencies — up for consideration. Beijing has long been wary of cryptocurrencies, viewing them as a threat to financial stability and capital controls, but economists now see a window for change as the US moves to tighten its grip on the nascent technology. […]
For its part, China has been adding gold to its reserves in multiple waves from at least 2015, the date from which holdings have been updated more regularly. It has now done so for 11 straight months. This has happened as the nation lowers its US Treasury holdings — as of late July, these were down 41% from the end of 2015. […]
If even 1% of privately-held Treasuries shift to bullion, Goldman Sachs Group Inc. estimates gold can reach for $5,000 an ounce.
“China is talking about alternative payment with a new level of confidence,” Kennedy said. “Gold is a key part of that.”
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