CHINA`S GOLD DEMAND QUANTIFIED / MACLEOD FINANCE

China’s gold demand quantified

China has accumulated huge quantities of gold. Household savers are sitting on savings of $30 trillion equivalent and have a further $5 trillion every year to invest. 

ALASDAIR MACLEOD

In conclusion, there is a growing likelihood that Chinese public demand will accelerate on the back of geopolitical factors and the debt traps being sprung on G7 governments.

This article delves into China’s gold accumulation policies, initially by the State between 1983—2002, and then by her citizenry. 

The amounts accumulated in the last 43 years are truly staggering. 

And now, as a rising bullion price has begun to reflect an acceleration in the weakening of the fiat dollar and other G7 currency values, a shift in China’s household savings demand from bank deposits into gold accumulation accounts will create a crisis driving gold (and silver) prices substantially higher.

This development will in itself accelerate the decline of the dollar-based fiat currency system and bring forward its final collapse.

The background

In 1983, the Peoples Bank of China was appointed with total responsibility for acquiring and managing the nation’s gold reserves. 

It is important to note that the PBOC’s own gold reserves do not capture the extent of the PBOC’s accumulation, confirmed in the original Regulations. 

Article 3 in English translation states:

- “The State shall pursue a policy of unified control, monopoly purchase and distribution of gold and silver.

- “The total income and expenditure of gold and silver of State organs, the armed forces, organisations, schools, State enterprises, institutions and collective urban and rural economic organisations shall be incorporated into the State plan for the receipt and expenditure of gold and silver.”

In other words, gold accumulated by the PBOC would be distributed to various state entities and not be included in the PBOC’s reserves: they would be “off balance sheet”.

The importance of gold and silver to post-Mao China can be gauged by the investment in mining, which led to China becoming the largest national source of mined gold in 2007. 

The export of gold was banned. 

Additionally, China imports doré for refining and in the case of silver extracts it from the refining of imported non-ferrous silver-bearing ores, the other precious metal referred to in Article 3 above.

In 2002, the PBOC opened the Shanghai Gold Exchange (SGE) and for the first time permitted members of the public to buy and take delivery of gold. 

It was an important development, because with the agreement of the Chinese Communist Party (CCP) it was obviously decided that enough gold had been accumulated by the PBOC. 

We don’t know how much that total was because it remains a state secret.

However, the PBOC was also responsible for all China’s foreign exchange transactions. 

From the early 1980s there were growing inward investment flows as foreign manufacturers set up factories, and from the early 1990s inward flows were surpassed by rapidly expanding exports. 

If we assume that just 10% of these flows were diverted into accumulating bullion, then at contemporary prices some 20,000 tonnes would have been acquired before the SGE was opened in 2002. 

Furthermore, the value of this amount of gold was approximately 10% of China’s money supply at that time.

We can be certain that the POBC has continued to accumulate gold for various state entities in the 24 years since the SGE was established.

That such a large quantity of bullion could be acquired without leaving footprints in bullion markets needs explaining. 

There were at least four factors at play:

· Gold was in a significant bear market from 1981 to 2002, when Swiss and other private banks sold off large quantities of investment bullion on behalf of disillusioned clients.

· Between 1983—2002 global gold mine output increased above-ground stocks by 42,500 tonnes. 

Over the period, annual output nearly doubled and estimated above-ground stocks increased by 45%. 

For a patient and very large buyer, the amount of newly mined gold was an unprecedented opportunity.

· Analyst Frank Veneroso after careful enquiry and analysis estimated that between 10,000 and 16,000 tonnes of central bank gold had been leased, swapped, and sold into the market by 2002, never to return. 

Flippantly it was assumed that this gold ended up adorning the necks of Asian women. 

A more plausible explanation is that China was quietly accumulating it when offered and when other central banks were net sellers in addition to their leasing and swap activities.

· Bullion banks and large mining houses, such as Barrick, increased short positions by forward sales and hedges in London and New York, further increasing supply. 

This was a new innovation.

Putting these factors together, China could have easily accumulated 20,000 tonnes without driving prices higher in the nineteen years between 1983—2002. 

We don’t know the exact figure, but it seems a reasonable estimate.

Since then, over 28,000 tonnes of gold have been delivered by the SGE to the general public as buyers of jewellery, small bars, and coin. 

Some of this will have been returned to the SGE as scrap to be re-refined and vaulted, so perhaps net SGE deliveries are in the region of 25,000 tonnes, roughly half an ounce per head of population.

Gold accumulation accounts

China is like Hotel California for gold. 

It is sold by Westerners, refined into the Chinese one kilo four-nines standard and sent to China where it remains locked out of western capital markets. 

Clearly, the CCP is still accumulating bullion stocks. 

Furthermore, Chinese banks offer gold accumulation accounts alongside customer deposits. 

For as little as 500 yuan ($75) a saver can open a gold accumulation account and transfer regular savings from his or her deposit account. 

On behalf of their customers, these banks hold bullion reserves in the SGE vaults, the quantities to date being unknown. 

These savings are in addition to SGE withdrawals which mainly satisfied jewellery demand.

Savers have been accumulating deposits in increasing amounts since the property bubble burst nearly two years ago. 

The other investment alternative, the stock market has been lacklustre until recently, leaving cash deposits and gold accumulation accounts as the principal alternatives to property. 

However, driven by POBC monetary policies interest rates have declined to very low levels, reducing the attractions of savings deposits and increasing the relative attraction of gold.

The scale of household savings is simply enormous. 

Total household deposits reached 163 trillion yuan by mid-2025 ($24 trillion equivalent — McKinsey, August 2025) . 

Diverting just 1% of this total into gold accumulation accounts amounts to 1,540 tonnes at current prices. 

New household savings in the first half of 2025 ran at an annualised rate of $5.28 trillion and if only 10% of that was invested in gold it would account for nearly 3,400 tonnes which is the entire annual world goldmine output. 

Based on McKinsey’s estimate, total household savings now approach $30 trillion equivalent.

It is likely that some or all Chinese banks offering gold accumulation accounts do so on an unallocated basis, with gold liabilities not fully backed by bullion. 

If so, this leaves them vulnerable to a surge in household investment demand, potentially forcing them to suspend the facility. 

But that would send a signal of distressed shortages to the market and combined with Comex shorts in New York drive the gold price higher on a vicious bear squeeze. 

Anticipating the difficulty is likely to bring forward demand from the major banks to cover these potential liabilities.

We have already seen the potential of this problem, when gold began to rise exponentially in January. 

China’s banks were forced to ration daily sales of small bars to the public, being sold out in less than a minute.

The danger of these developments at the same time as the dollar and other currencies lose purchasing power at an accelerating rate due to the consequences of the Gulf war is also set to trigger increased demand from central banks and sovereign wealth funds. 

As it becomes increasingly obvious to investors and the wider public alike that these factors are driving gold prices higher and higher, a self-feeding crisis is likely to ensue. 

Even the G7 establishment will no longer be able to turn a blind eye to the consequences for the credibility of their own currencies.

In conclusion, there is a growing likelihood that Chinese public demand will accelerate on the back of geopolitical factors and the debt traps being sprung on G7 governments. 

Western investors are wholly unprepared for these events. 

The really bad news for them is that with gold being legal money without counterparty risk, the signal being sent about the deteriorating value of fiat currencies is that their credibility is already in a state of collapse.