How China became a more powerful force in global gold demand

China's grip on the global gold market is expanding and becoming more integral, according to analysts at Jefferies. The People's Bank of China is at the core of the nation's gold strategy, with its reported reserves growing from around 1,950 tonnes in November 2022 to approximately 2,366 tonnes by July 2026. This represents a significant annual increase of about 225 tonnes in 2023, marking the largest yearly rise on record.

The pace of purchases intensified again in the second quarter of 2026, with China adding roughly 33 tonnes, followed by around 20 tonnes in July. This surge in buying suggests that official-sector purchases, possibly underreported, may have reached around 161.6 tonnes since January 2024, compared to the 130.9 tonnes documented by the central bank. This discrepancy hints at potentially undisclosed purchases of about 30 tonnes.

Beyond the central bank, Chinese regulators recently permitted ten insurance companies to invest in gold, with holdings limited to 1% of assets. A broader rollout of such institutional participation could establish a consistent source of demand. Additionally, changing household behavior has also contributed to the rise in gold demand.

Traditional savings vehicles, such as property and low-interest deposit accounts, have become less attractive due to weaknesses in these sectors. In contrast, demand for gold bars, coins, and Exchange-Traded Funds (ETFs) remains robust.

Chinese gold ETF investments have seen a sharp acceleration since 2023, with Huaan Yifu Gold emerging as one of the country's largest ETFs by assets under management. Furthermore, China is investing in the infrastructure necessary for it to assume a more prominent role in global bullion trading. In Hong Kong, a new clearing and settlement system is being developed, along with a delivery link with the Shanghai Gold Exchange and an offshore vault network.

The planned storage capacity in Hong Kong could expand significantly, from approximately 200 tonnes to over 2,000 tonnes, indicating ambitions that extend beyond simply acquiring bullion to encompass storage, clearing, settlement, and trading of gold on a much larger scale.