China's Unreported Gold Purchases Could be 10Xs Official Figures

Key Concepts

• Precious Metals Performance: Gold and silver have experienced significant price rallies, driven by expectations of Federal Reserve liquidity and inflation.
• Silver All-Time High: Silver futures briefly reached a new nominal all-time price high of $54.39 per ounce.
• Gold Price Surge: Gold surpassed $4200 per ounce for the first time since the previous month.
• Hawkish Fed Comments: Federal Reserve comments triggered a reversal in precious metal prices towards the end of the week.
• Gold Sell-off and Correction: Gold experienced a sharp sell-off after reaching an all-time high, losing 11% in 7 days, attributed by many analysts to extended market positioning and profit-taking after a parabolic rally.
• Shifting Portfolio Allocations: Institutions like Morgan Stanley have adjusted their portfolio models to include a larger allocation to gold (e.g., 60/20/20 model).
• Central Bank Buying: Record central bank buying of gold is a significant fundamental driver.
• China's Gold Holdings: Estimates suggest China may be buying significantly more gold than officially reported, potentially 10 times the reported amount, with Plenum Research estimating nearly 1,300 tons annually in 2023 and 2022.
• Fiat Currency vs. Gold: The sheer amount of fiat Chinese yuan in circulation suggests a need for higher gold prices and official reserves to establish currency credibility.
• Historical Gold Bull Market: Comparing current gold values to outstanding fiat currencies worldwide suggests potential for significant future price appreciation to match historical bull market phases.
• Western vs. Eastern Demand: While the West has been selling off unsecured ETFs and tonnage, China's combined ETFs have been major net buyers.
• Silver Market Tightness: The world silver market is described as tight, with potential for future supply constraints.
• Silver as a Critical Mineral: Silver is being recognized as a critical mineral in the USA, potentially leading to government restocking and policies supporting domestic production and consumption.
• Silver's Industrial Importance: Silver is crucial for alternative energy, electronics, artificial intelligence, and computing technology.
• Global Silver Deficit: The world has been running an estimated deficit of 1.347 billion ounces in silver demand (industrial, bullion, and unsecured ETF) from 2019 through the end of 2025.
• Gold-Silver Ratio: The gold-silver ratio remains historically high at 80, indicating silver is undervalued relative to gold.
• Shanghai Silver Inventories: Transparent silver warehouse levels in China have collapsed to 46.5 million ounces combined between the Shanghai Gold Exchange and Shanghai Futures Exchange.

Precious Metals Rally and Reversal

Precious metals, particularly gold and silver, have demonstrated strong price performance, with recent rallies driven by expectations of Federal Reserve liquidity and inflation. Silver futures briefly touched a new nominal all-time high of $54.39 per ounce on Thursday. Gold also surpassed $4200 per ounce for the first time since the previous month. However, hawkish comments from the Federal Reserve on Friday triggered a reversal, leading to a price decline to close the week. Despite this short-term reversal, the fundamental drivers for precious metals are considered sound.

Gold's Recent Performance and Market Dynamics

Gold experienced a significant sell-off after reaching an all-time high near $4,400 per ounce in mid-October. This sell-off resulted in an 11% loss of value within seven days, including the largest single-day drop in over a decade. Analysts largely attribute this correction not to a fundamental narrative change, but rather to the reflection of extended market positioning. This view is supported by the preceding parabolic 30% rally that began in late August. This rally coincided with increased advocacy from prominent financial institutions and individuals for gold to be a larger component of investor portfolios. For instance, Morgan Stanley shifted its traditional 60/40 portfolio model to a 60/20/20 allocation, dedicating 20% to gold. Both Jeffrey Gunlock and Ken Griffin echoed this sentiment. The rapid price increase led to a "rush to buy," and assets that experience such explosive upward price movements historically tend to correct aggressively.

The key question regarding gold's current demand is what has fundamentally changed. While global tensions may have cooled slightly, potentially impacting central bank buying, domestic inflation expectations have not. Recent policy proposals by the administration, such as distributing $2,000 as a "tariff dividend," suggest continued inflationary pressures. A significant tailwind for gold is the Federal Reserve's shift to a more dovish stance in response to a softening labor market. Despite persistently high CPI (Consumer Price Index) figures, mainstream financial media, including the Financial Times, are acknowledging that China may be acquiring significantly more gold than officially reported, potentially up to 10 times the reported amount. This under-declaration is also suspected for government central banks regarding their official gold reserve buying.

China's Growing Gold Accumulation

Plenum Research, a Beijing consultancy, is cited as estimating that in 2023 and 2022, China made approximately six times the officially reported gold purchases, amounting to nearly 1,300 tons each year for its gold reserves. It is widely understood that China's official gold reserves, as declared, represent only a fraction of its actual holdings, which are likely kept off-balance sheets. As the world's leading gold miner for the past 15 years, China has likely amassed substantial gold reserves. The expectation is that China may eventually disclose official gold reserve holdings comparable to the collective EU or the current USA, or even higher. The substantial amount of fiat Chinese yuan circulating in the Chinese economy suggests a need for higher gold prices and official gold reserves to bolster currency credibility. Current data indicates that China has issued more broad fiat yuan currency than the USA and EU combined.

Historical Perspective and Future Potential

When considering the last major Western world gold bullion bull market phase from the early 1980s, and comparing gold values today against outstanding fiat currencies worldwide, gold still has significant room for price appreciation to repeat historical performance.

Silver Market Dynamics and Critical Mineral Status

The spot silver and gold markets showed overall gains for the week, with a slight sell-off at the end of trading. The spot silver price closed at $50.50 per ounce bid, and the spot gold price ended at $4,82.50 per ounce bid. The spot gold-silver ratio concluded the week at a historically high level of 80. This ratio, when analyzed using annualized price data, highlights the current elevated position relative to historical averages, sitting approximately 2.5 standard deviations above the historical average of just below 30. This level is coincidentally close to the spot gold-silver ratio low observed in the spring of 2011, during silver's previous, less fundamentally driven bull run.

Silver's recent price surge has led to new nominal record price highs being set globally, attracting increased attention. Transparent silver warehouse levels in China have significantly decreased, now standing at a combined 46.5 million ounces of silver inventories across the Shanghai Gold Exchange and Shanghai Futures Exchange, which is concerning for the world's largest industrial silver consumer. This situation raises the question of when China will cease to be a primary buyer supporting the global market.

Dr. Mark Thornton's recent insights suggest that silver's designation as a critical mineral in the USA will likely lead to government restocking. Historically, the United States maintained stockpiles of silver for war and coinage, but these were largely depleted decades ago. This designation implies a potential for government acquisition of silver reserves and the implementation of policies to boost domestic production, consumption, and storage. Silver is described as a highly valuable metal, essential for numerous applications, particularly in alternative energy, electronics, artificial intelligence, and computing technology, making it a strategic metal. Government support for new mining in the United States and stockpiling initiatives could act as a tailwind for the silver market, albeit on a smaller scale than the central bank buying observed for gold.

India has reportedly had to pause capital inflows into many unsecured silver ETFs due to recent global silver shortages. Based on estimates from the Silver Institute, considering combined industrial, bullion, and unsecured silver ETF demand since 2019, the world has experienced an estimated deficit of 1.347 billion ounces through the end of 2025. This sustained, insatiable silver demand over the past seven years is a contributing factor to ongoing shortages in markets like London. Therefore, classifying silver as a critical mineral and elevating its profile is crucial for nations concerned about their economic standing.

The observation that the West has sold significant tonnage of gold during the recent price consolidation, while China's combined unsecured ETFs have been the major net buyer, suggests a divergence in market strategies. The West appears to be confused about the current market dynamics concerning bullion relative to other goods, services, and asset classes.

Conclusion

The precious metals market is experiencing significant price action driven by a confluence of factors including expectations of Fed liquidity, inflation, and substantial central bank buying, particularly from China. While gold experienced a sharp correction after a rapid ascent, its fundamental drivers remain strong, supported by a dovish Fed and potential currency debasement concerns. Silver, meanwhile, is facing significant supply tightness due to robust industrial and investment demand, compounded by its designation as a critical mineral in the USA, which could lead to increased government acquisition. The divergence in buying patterns between the West and the East highlights differing market perspectives and strategies. The historically high gold-silver ratio suggests potential upside for silver.