China's Gold Stockpile: A Prelude to a Global Shift in Reserve Currencies

China's gold reserves have been rising steadily since 2009, from 1,054 metric tonnes to approximately 2,366 mt, an increase of about 124%. However, this only accounts for the official reserves reported by the People's Bank of China (PBOC). Estimates suggest that Chinese state entities may hold around the same amount of 'hidden gold' as officially reported, bringing total gold reserves to about 4,700 mt.

This would make China the second-largest sovereign gold holder in the world after the U.S. and ahead of other major gold powers such as Germany, Italy, and France. But what's China doing with its massive gold accumulation? The notion that China is creating a gold-backed yuan is unfounded, as China's reported gold holdings are a mere 2% of its money supply.

China is actually building a global gold trading center, with infrastructure for investment, retail accumulation, hedging, imports, settlement, clearing, and storage. This includes measures such as the restriction on individual precious metals trading linked to the Shanghai Gold Exchange and the launch of a new central clearing and settlement system for gold in Hong Kong.

China's policymakers expect the price of gold to soar sooner rather than later, and they're preparing for a potential confrontation with the U.S. that could force them to separate from the dollar payments system entirely.