Could China's Gold reserves surpass the United States within five years?

Could China’s gold reserves surpass the United States’?

On the surface, this seems like a tall order, but analysts at BMO Capital say it could happen in the next five years given China’s unreported gold buying.

The U.S. officially holds just over 8,133 tonnes of gold in its reserves. However, we don’t know for sure how much gold the U.S. really has because the government refuses to do a comprehensive audit.

The Chinese officially have 2,346 tonnes of gold. However, China likely holds significantly more gold than it publicly admits.

Last year, Money Metals’ researcher Jan Nieuwenhuijs parsed the data and determined that the Chinese central bank covertly bought 570 tonnes of gold in 2024.

The People's Bank of China only reported a 41-tonne increase in its gold reserves that year.

Mainstream analysts have finally started to catch on to this phenomenon. Late last year, the Financial Times ran a report on unreported Chinese gold buying. More recently, Goldman Sachs analysts estimated that China bought more than 48 tonnes of gold in May via the London over-the-counter (OTC) market. The People’s Bank of China only reported a 10-tonne increase to its gold reserves.

Given the lack of transparency, it’s impossible to say just how much gold the Chinese are sitting on. Nieuwenhuijs’s analysis of formal and informal sources indicated that as of the end of 2024, the People’s Bank of China was sitting on more than 5,000 tonnes of monetary gold – more than TWICE what they publicly admit.

If that’s true, then China isn’t trailing the U.S. in the gold department by nearly as much as official data would indicate.

Analysts at BMO Capital estimate the People’s Bank of China holds 5,200 tonnes of monetary gold. That represents about 13 percent of the total above-ground gold supply.

Given the accelerated pace of buying, China could surpass the U.S. in gold reserves in less than five years, according to BMO analysts.

“China has another ~5 years of buying at current rates for the PBoC to reach the USA's level of treasury reserves, but in total gold terms could surpass the U.S. much sooner.”

BMO analysts say this combination of aggressive central bank buying and Chinese investment demand will give China “more leverage in global pricing, enabled by its sheer scale of demand and growing futures and OTC market liquidity.”

As far as China’s broader strategy, BMO analysts say it’s difficult to determine the endgame.

“Unsurprisingly, China hasn't disclosed its ultimate gold accumulation targets. But given its stated ambitions for economic expansion and RMB internationalization, our view is that achieving the U.S.'s level of holdings is an absolute minimum target, implying another ~2,500-3,000 tonnes of purchases, achievable in two to five years depending on method. Yet aspirations are likely higher still given the need to establish RMB credibility globally, with ongoing acquisitions (~$18bn to date) of overseas assets a key pillar of its strategy.”

BMO analysts noted that U.S. gold reserves represent around 5 percent of the M2 money supply. For China to reach that ratio, it would need to accumulate around 18,000 tonnes of gold.

Along with its central bank gold reserve aspirations, BMO analysts noted China is positioning itself to become a bigger player in the global gold market. Earlier this month, Hong Kong launched trial operations of its gold clearing and settlement system, putting the region in a position to challenge Western dominance of the global gold market.

A spokesperson said the government-owned clearing system will reportedly “mirror” the financial infrastructure used by the LBMA in London.

He said the company will offer “a comprehensive suite of services ranging from gold deposits and withdrawals to transaction settlements in the over-the-counter market in Hong Kong,” adding that a new gold price ticker – HAU – would be introduced to “ensure that Hong Kong gold prices are fully accessible to global market participants.”

BMO analysts said China hopes this initiative will attract more international gold trading activity and that it could shift more global gold pricing power from traditional Western centers toward China.