There have been many theories behind the record-breaking rise in the gold price this year. Investors seeking a safe haven during times of economic and political volatility? The prospect of lower interest rates? The weakness of the U.S. dollar?
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Well, you can now add the Chinese state to that list.
Banking Demand
According to an article in the Financial Times, China has been busy mopping up tons and tons of gold. In fact, far more than official figures.
According to official data, the People’s Bank of China bought only 6 tons of gold between June and August this year. However, analysts at Société Générale estimate that China’s actual purchases could reach 250 tons per year, which is more than a third of global demand from central banks.
According to alternative estimates by the Plenum Research platform, in 2022-2023, the gap between official and actual purchases was more than 1,300 tons annually.
Bruce Ikemitsu, director of the Japan Gold Market Association, believes that China’s current gold reserves are almost 5,000 tons – twice as much as the country officially claims.
It is not just the central bank which has been heading to them hills for gold. It is understood that the sovereign wealth fund CIC and “military structures” may also have been on the hunt.
Tariff Trauma
Part of the reason for the gold additions could be the worsening relations with the U.S. over the last few months as a result of the tariff trade war and geopolitical issues such as Taiwan and Ukraine.
“Gold is seen as a pure hedge against the US,” explained Nikki Schils, an analyst at Swiss gold refiner MKS Pamp.
Despite those trade tensions easing, there could be more to come.
Earlier this month a Schroders report stated that gold only represented 12% of the total reserves of emerging-market nations. China’s proportion of gold reserves was estimated at 7% compared with 45% for developed countries.
“If, as we see it, this is the ‘Mount Everest’ of gold bull markets. While we are well into the foothills, there is a long climb yet to reach the peak.”
The gold price has been on a tear this year constantly breaking records as it soared above $4,000. UBS believes it could go as high as $4,700 in the next 12 months.
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