Latest / Look Forward / China's Gold Chase In An Uncertain World | Look Forward Ep. 41

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China's Gold Chase In An Uncertain World | Look Forward Ep. 41 · Look Forward

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Hello and welcome to the Look Forward podcast, powered by the S&P Global
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Institute, the platform for enterprise thought leadership across S&P Global.
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I'm Aries Poon.
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I'm leading the analysis team for Asia Pacific and Latin America in
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the market intelligence division, and I will be your host today.
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Markets are moving faster, risks are shifting, and
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decision makers need foresight.
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In this podcast, we bring you expert perspectives from across S&P Global
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on the macroeconomic, market, energy,
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and technology forces shaping what comes next and helping you navigate uncertainty
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and look forward with confidence.
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Today, we're discussing gold in a context of how China sees a world becoming
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more uncertain, more fragmented, and potentially more volatile, and what that
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means for policy, markets, and industry.
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A new S&P Global report argues that China's growing focus on gold is not
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simply a reaction to higher prices.
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Instead, it reflects a broader effort to strengthen economic
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resilience, diversify risk, and reduce vulnerabilities in an increasingly
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unpredictable global environment.
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To unpack that story, I'm joined by Charles Chang, Greater China country lead
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for corporates at S&P Global Ratings.
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Charles, welcome.
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Thank you.
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So Charles, uh, first question, why is China suddenly so interested
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in gold, and what has changed?
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Yeah, thanks, Aries.
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This is, uh, the, the question that we tried to explore in this report.
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Uh, when we began the, the work on the report, uh, we found that, uh, there are
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a number of major developments, um, out of China on gold in the last few years.
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Uh, for example, uh, we've seen, uh, PBOC's gold purchases
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have been accelerating.
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Chinese consumers have been buying more gold.
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Chinese gold miners have been buying more gold mines overseas, and the deals
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are getting larger, and China reported a series of super giant gold discoveries.
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Um, and lastly, uh, China, through the Shanghai Gold Exchange, opened
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its first offshore gold vault, uh, that's designed to, uh, trade
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gold and renminbi in Hong Kong.
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Um, outside of China, we also noticed that, uh, gold prices have been surging
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year after year in recent years.
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Uh, purchases of gold by central banks as well as consumers a-
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across, uh, developing world have, uh, also been surging.
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So we asked exactly this question, "Why are all these things
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happening at the same time?"
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Uh, we noticed, uh, from, uh, our work that all of this began in
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twenty twenty-two, uh, and they have been accelerating since.
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So then the question becomes, what happened in twenty twenty-two?
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Um, the most, uh, significant event, uh, that we could find, uh, was the
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escalation of the Russian-Ukraine war and the, uh, freezing of Russia's, uh,
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foreign exchange assets, um, you know, by the West, uh, in, uh, in that year.
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And this, from what we can tell, is, uh, the trigger, uh, most likely trigger
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for all, all of these developments.
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So let's, uh, zoom in a little bit in the China's gold policy
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because your report actually traces a two-decade evolution of that.
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So why is that history important for understanding what is happening today?
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So in order to say that something has changed, uh, we need to first understand
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what things were like before, right?
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So, uh, from that perspective, we need to understand, uh, what China's policies
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were on gold, uh, in previous years.
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Um, and this is especially, uh, true on the policy side, uh, because if
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we are to call it a policy shift, uh, we need to understand, uh,
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what the previous policies were.
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And lastly, we need to understand how China's become the world's largest, uh,
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um, producer of gold and also the consumer of gold and why that has happened.
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Um, so this background, uh, uh, information is important to the
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research just so that we can understand what's happening, uh, you know,
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more clearly, uh, in recent years
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So if we zoom out and are we talking about China, which is increasingly sees gold
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as part of a broader resilience strategy rather than simply an investment strategy?
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And how does that different from what we are seeing elsewhere?
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Well, what struck us, uh, and what really stood out to us, uh, in terms of
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China's strategy and how that differs from other countries, uh, is that first
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it's a national priority, um, and second, it's comprehensive in nature, from
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prospecting to production to purchases.
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Uh, this is unlike, uh, what we know of gold policies from other countries.
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Um, as you say, if we zoom out and look at the bigger picture, we see that
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China has, uh, expressed deep discomfort with, uh, geopolitical developments in
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the world since twenty twenty-two, and this has culminated to what President
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Xi recently called a world in disarray.
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Uh, China's gold policies prior to twenty twenty-two, we're talking about policies
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before, those policies prior to twenty twenty-two focused on supporting gold
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production and prospecting, uh, on the production side, and on the consumption
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side, it focused on encouraging, uh, you know, savings in physical gold by
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Chinese consumers, what the government called stored gold, uh, among the people.
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So, uh, aside from the gradual buildup of, uh, of gold reserves, these were
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the core, uh, of, uh, China's gold policies prior to twenty twenty-two.
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After twenty twenty-two, all of these things accelerated.
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We've seen the PBOC's gold purchases accelerate, not-- no longer a, uh,
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you know, a gradual exercise as such.
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Uh, in, uh, twenty twenty-five, we saw this shift, uh, uh, you know,
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officialized, uh, in a gold action plan.
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In the plan, gold was recognized as a sh- strategic mineral, that is what
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they call a cornerstone for China's financial and industrial security.
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Now, this is important wording, uh, from our read because, uh, as you may know, we
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have published a previous, uh, report in the China Lab, with your help actually,
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um, about, uh, China's dual mandate and how national security issues have risen
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to become, uh, the central organizing principle behind China's policies.
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So in that light and in that context, this wording is important, uh, because
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to us, that means that, uh, gold has become a national priority for China,
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uh, and the, uh, all-out pursuit across the, uh, the supply chain for, uh, for
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gold from production to consumption, uh, is something that really does stand
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out, uh, for, uh, you know, for China
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In fact, what's happening in China is kind of situated in a more broader
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context of the, you know, glo- uh, global gold chase, you know.
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Um, because your report also saying that many developing countries have
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increased gold holdings too, right?
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Since twenty, uh, twenty-two.
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So what is driving this broader global trend?
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Yeah.
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So this is an important, uh, finding, uh, of the report because part of the reason,
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uh, we have looked across the developing world was because we wanted to first,
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uh, make sure that what we're saying, uh, is something that is not just happening
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in China, but is actually applicable to, um, other parts of the world.
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Because China does get singled out on a lot of issues and, and tend
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to be a media focus, uh, because it tends to make good headlines.
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But the question is: Is China really the only ones doing this?
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Uh, and in this case, the answer is no.
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Uh, China is not the only ones doing this.
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Uh, we have seen since twenty twenty-two, because of the, uh, uh,
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escalation in geopolitical risk, uh, that, uh, that we can identify, uh,
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that, uh, gold purchases by central banks, uh, across, uh, the developing
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world ha- have been accelerating, and purchases by consumers, uh, across
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the developing world, um, has, uh, you know, been accelerating, um, as well.
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So Chinese gold consumers, uh, are buying more gold bars and coins, uh,
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and less gold jewelry because there's more demand for, uh, savings, uh,
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through gold, uh, rather than spending in luxury goods that are made of gold.
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The same thing is happening in India.
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So this is, uh, something that is happening across the developing world,
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um, and also, uh, for the central banks, uh, and consumers alike.
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So this is something that, you know, we found to be much broader in scope,
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uh, than what the market and perhaps what the media often, um, uh, you know,
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uh, gives, uh, gives it context for
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So if many countries are actually buying more gold too, as you mentioned,
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uh, is there anything that is making China's approach distinctive
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from other developing economies or they're basically very similar?
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Well, China's strategy is, is different just by the, uh, sheer fact that,
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uh, China occupies, uh, various important roles in the gold market.
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Um, in the global gold market, uh, and I'm talking about physical gold here,
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uh, China is the largest producer, as I mentioned, the largest consumer, uh, as I
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mentioned, and also the largest importer.
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Um, so those three roles makes China, uh, the largest market
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for physical gold in the world.
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Uh, that position itself is, uh, uh, available only to China, and it is
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not, uh, the same for other countries.
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Um, and also, uh, China can trade gold in its own currency, which, uh,
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most other countries, uh, cannot, although some may be looking into that.
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Uh, but gold has not been an area where, um, uh, some of the countries
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that want to internationalize their currency, uh, have been focusing on.
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Uh, but China has been pushing this.
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And, um, also there is a, uh, degree of, uh, uh, you know,
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synergy between China's other major policies and its policies in gold.
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So for example, internationalization of the renminbi, uh, itself is also in part,
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um, you know, supported by, uh, a more, uh, gold trading in, uh, in renminbi.
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So this major, uh, uh, objective, uh, of the government to broaden the use
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of its currency, um, also, uh, you know, cross paths and also, uh, is
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supported by its policies in gold.
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So that synergy and that, uh, cross support, uh, is something that we
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don't really see in other countries
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Thanks, Charles.
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I think that's very clear.
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And, um, I actually want to, uh, bring up another idea from, from your
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report, which is very interesting.
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It, it is about the Gold Road and the emerging network of gold
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vaults and trading infrastructure.
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So can you explain to our audience what exactly is China trying to build?
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And you actually also allude to the renminbi.
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So to what extent this, uh, is actually about the dollar?
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Yeah.
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So this is, this is an interesting, uh, uh, uh, initiative.
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Uh, it began in twenty nineteen, uh, what was called the Gold Road.
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Um, in English, uh, this is sometimes, uh, translated, uh, as the Gold Corridor,
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but they're basically, uh, it seems like, uh, to us that they're, they're
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kind of falling into the same effort.
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Uh, the core of the effort is to, uh, trade, uh, gold in renminbi.
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There were internationalization efforts, uh, by the Shanghai Gold Exchange,
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uh, years earlier, uh, when, uh, they launched the Shanghai Gold benchmark
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price, basically to allow for a global benchmark, uh, denominated in renminbi.
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So even back then, there was the thinking and the policy drive, uh, to trade
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more gold in renminbi In terms of how that, uh, um, affects, uh, renminbi
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internationalization, well, the renminbi internationalization has progressed
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very slowly, uh, as everybody knows.
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Uh, that effort has been in place for, uh, over a decade,
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but the progress is limited.
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Uh, but if you look at the overall change, uh, it has gone from the low
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single digits to the high single digits, um, you know, in global trade, which
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is, you know, from a relative basis, uh, you know, a meaningful change.
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So the, I think, issue, the issue with, uh, how this is- this is portrayed often
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in markets is that the talk very quickly goes into whether the renminbi is going
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to replace the dollar, whether trading of gold in renminbi is gonna replace the,
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the trading of gold, uh, in US dollars.
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That's not the question, and that's not what the government is looking for.
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The government is simply plugging away at trading more of gold,
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uh, in its own currency year after year, decade after decade.
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Um, this is something that they have shown, uh, to be their, uh, one of
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their core, uh, policy intents, uh, for the renminbi, and we expect that
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to apply to, uh, to gold as well.
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Um, so in terms of the Gold Road, how that supports that, well, if you
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have a policy effort to broaden, uh, the use of renminbi in gold trading,
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uh, you will see, uh, more channels, uh, of, um, uh, of gold being
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converted to renminbi and vice versa.
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And that major push seems to have, um, had a real anchor, um, last year when, uh,
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the Shanghai Gold Exchange opened a gold vault, uh, in Hong Kong, and that gold
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vault, uh, is designed to trade renminbi, uh, in physical deli-- to trade gold, uh,
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in physical delivery, uh, in renminbi.
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So the physical delivery means that you can trade gold in renminbi and get
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the gold physically and vice versa.
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So that, uh, capacity initially in Hong Kong is about a hundred and fifty tons.
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Uh, Hong Kong plans to expand the, uh, city's, uh, vault capacity,
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uh, by over ten times, uh, to two thousand tons in three years.
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Uh, that is a very rapid timescale.
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So when you have two thousand tons of gold, uh, if that vault gets filled
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up, uh, with that much physical gold, it necessarily makes you a
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major physical gold trading center, not just in APAC, but in the world.
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Um, and if, uh, that trading volume is, is all in renminbi, uh, then that, uh,
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would make it a big leap, uh, in terms of how much gold is, uh, traded in renminbi.
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So that's, uh, all kind of in the future.
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Uh, in terms of whether that happens in three years' time or longer and
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whether this, uh, model that we see in Hong Kong gets spread to
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other cities, we don't really know.
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Uh, the government is, is, uh, not very vocal about this.
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Uh, but, um, you know, we could see Hong Kong, um, as a kind of
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working prototype, if you will.
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Um, if it really works in Hong Kong, it could, uh, you know, potentially
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be, um, you know, uh, expanded to, uh, to other major gold, uh, trading hubs
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like, uh, Singapore or, um, you know, uh, or in Malaysia, uh, or in Moscow.
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So, uh, we'll see
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Thanks.
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That's a very insightful deep dive into or behind the scene
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of China's, uh, gold policy.
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So we're now in the last segment of this episode, which is we're
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looking at the winners, losers, and also industry implications.
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Um, first off, um, so what does this all mean for miners, investors,
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and the global gold industry?
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Well, for the global gold industry, um, I think the question is, uh, to what
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extent and when, uh, we will see more, uh, gold supply come into the market.
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Um, our teams believe that it will be a very long time, uh,
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just as a frame of reference.
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Um, as it stands right now, if you, uh, prospect and, and find gold deposits, from
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finding it to producing it, putting it out in the market, uh, that process takes,
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um, you know, eighteen years or more.
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So it's a very long time for that supply to come on.
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Global gold miners have been expanding, uh, but really kind of,
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uh, around their existing assets.
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Uh, but those assets, uh, uh, most of the, uh, uh, kind of lower-hanging
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fruit and easier excavated areas are already, uh, you know, exploited.
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Uh, so their, uh, expansion of output from, uh, from those
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areas are gonna be limited.
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Um, they are ex- uh, expanding, and they are, uh, uh, looking to,
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um, expand more, um, acquisitions.
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Uh, but their experience from the last gold price downturn and also
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just by the industry's practice, uh, gives them, uh, quite a high level of
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prudence in terms of, uh, expansion.
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Uh, because gold miners globally don't really, uh, work to the gold, uh, cycle
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because of this very, very long, uh, project lead time that's required.
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Chinese gold miners are a little bit different because they don't
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operate purely to, um, economic, uh, rationale and financial rationale.
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They also have, uh, national priorities that they adopt into their policy.
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And if you look at what the Chinese gold miners have said, uh, they have
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committed to expanding production, uh, to, uh, serve the country,
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uh, in, in various statements.
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Um, and we have seen, uh, their acquisitions of gold mine assets
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a-around the world picking up, and the scale of those acquisitions,
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uh, are multiplying, uh, in scale.
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So what seems to be happening is that the Chinese gold miners are looking for what
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they can, can find as viable assets, uh, and acquiring them to the extent they can.
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They have shown Um, a, a decent track record of, uh, acquiring these
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assets and turning them around, uh, returning to profitability, and
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putting, uh, the gold production, uh, out to market quicker and closing the
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transactions faster, uh, than, uh, perhaps what the industry might expect.
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So they do seem to have that capability and that track record.
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Uh, and would expect them to continue to leverage that, uh, in future acquisitions,
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uh, provided, uh, that, uh, as the industry, uh, has said, uh, that, um, they
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will, they will acquire with prudence.
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So it's not, uh, buy anything at any price.
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There's a good level of prudence.
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Uh, but to the extent that they can make it work and make it profitable,
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uh, we believe they will pursue that.
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Um, and I think that posture is, uh, going to be more in place for the
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Chinese, uh, gold miners, uh, than perhaps for their peers globally.
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Um, and if that, uh, continues to play out, we will see, uh, major Chinese
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gold miners continue to climb up the ranks of the, the largest gold miners in
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the world, um, as, uh, you know, Zhiji Mining have, uh, in the last few years.
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Thank you, Charles, for joining us today.
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The key message from the discussion is that China's interest in gold is about
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much more than rising prices, because what we're really seeing is the intersection
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of geopolitics, economic resilience, financial strategy, and industrial policy.
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And gold has become one way China is preparing for a world that it sees as
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more fragmented and less predictable, and that suggested story is likely to extend
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far beyond the bullion markets alone.
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If you would like to learn more, please, uh, you can read our report, uh, China's
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Gold Chase to Gain Pace in an Uncertain World on spglobal.com, and you can also
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connect with our guest today on LinkedIn.
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Thank you so much for listening to the Look Forward podcast.
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or YouTube, and we'll see you next time