China Secretly Buying 10x More Gold Than Published

About a month ago, Goldman Sachs analyst Lina Thomas predicted that gold prices could reach US$3,000 per ounce by the end of 2025. She based this on a key observation: Global central banks (especially China) have been on a steady gold-buying spree. However, as her prediction drew scepticism, one of the common counterarguments was that it’s unlikely for gold to keep rising if the U.S. dollar continues to strengthen. After all, so-called ‘Trump trades’ and other global market narratives suggest a strong dollar tends to hold gold back.

But Thomas has pushed back against these doubts. In a recent note, courtesy of Zero Hedge, she outlined why she believes gold can still climb, even if the dollar remains robust. She focuses on four main points:

1. Fed Cuts Are Key, Not the Dollar

Goldman’s economists anticipate that the Federal Reserve will cut interest rates even while the global monetary environment eases and the U.S. dollar stays relatively strong. Thomas believes it’s the Fed’s policy shifts, not the dollar alone, that will drive gold investor demand. If the Fed cuts rates by 100 basis points as Goldman expects, that scenario alone could lift gold prices by around 7%. Even if the Fed becomes less dovish and cuts only once more, gold could still approach US$2,890 per ounce.

2. Central Banks’ Structural Gold Buying

The idea that a stronger dollar would stop central banks from buying gold doesn’t align with the data, according to Thomas. In fact, emerging market central banks often convert dollar reserves into gold, especially when their own currencies weaken, as this can help instil confidence in their local financial systems. This dynamic supports steady gold demand regardless of a strong dollar.

3. Gold and the Dollar as Uncertainty Hedges

When global uncertainty is high (think trade wars, political instability, or escalating tariffs) both the dollar and gold have historically risen together. They can serve as dual hedges in a stormy world, which helps explain why one doesn’t necessarily crowd out the other.

4. Neutral Impact of Yuan Weakness on China’s Retail Demand

Even with China’s currency under pressure and broader financial easing measures in place, Thomas expects China’s retail gold demand to remain stable. Lower interest rates in China can boost gold buying, offsetting the dampening effect of more expensive gold in local currency terms.

Putting these arguments together, Thomas suggests that the biggest risk to Goldman's upbeat gold outlook isn’t the dollar at all. Instead, the main threat would be the Fed not cutting rates as much as expected. Ironically, fewer Fed cuts might mean the economy runs hotter, and down the line, that could lead to more inflation and higher gold prices. For now, though, the immediate focus is on central banks, and here China’s role is huge.

China Buying Way More Gold Than It Admits

Recent data is already bearing out a crucial piece of Thomas’s thesis. Goldman’s research into central bank and institutional gold purchases in the London Over-The-Counter (OTC) market showed a massive 64-tonne purchase in October. That’s far above the pre-2022 average of around 17 tonnes. Most surprising is that China appears to be the largest buyer, accounting for 55 of those tonnes.

Why is this remarkable? Because Beijing’s official reports stated they added only 5 tonnes that month. That’s a tenth of what Goldman’s analysis suggests. The freezing of Russia’s foreign exchange reserves two years ago appears to have been a warning for central banks in emerging economies. It emphasised the importance of holding reserves that are beyond the reach of foreign governments.

Why the Big Gold Grab?

Emerging market central banks have long seen gold as a safeguard. After the 2008 financial crisis, China’s leaders expressed worry about their massive U.S. investments, questioning the long-term safety of their dollar-denominated assets. Over time, these fears combined with increasing sanctions risks and geopolitical tensions have encouraged China and others to diversify reserves and accumulate gold. Unlike currencies or bonds, gold can’t be ‘frozen’ by foreign entities as easily, making it a sort of insurance policy against future financial black swans.

When the U.S. and its allies froze Russia’s central bank assets following the Ukraine conflict, it sent a powerful signal: if you’re a central banker in an emerging market, especially one wary of Western influence, gold feels safer than ever. Purchases soared, and the trend doesn’t seem to be slowing down.

What Else Supports This View?

Will this rush to gold continue? It’s likely. Even if geopolitical tensions were to ease, the precedent of freezing reserves is now set. Emerging market central banks, including China’s, hold far smaller portions of their reserves in gold compared to major developed economies like the U.S., France, Germany, or Italy, which hold the majority of their reserves in the yellow metal. This gap suggests plenty of room for more buying.

According to a 2024 World Gold Council survey, 81% of central banks expect overall global gold holdings to increase in the next year. None anticipate a decrease. Nearly a third plan to boost their gold reserves, the highest share since the survey began in 2018.

What Does This Mean for Gold’s Price?

For Goldman’s outlook of US$3,000 per ounce of gold by the end of 2025, these secretive large-scale purchases by central banks, particularly China, add an important layer of support. If their monthly ‘nowcasts’ of central bank buying run about 10 tonnes stronger each month than expected, that could nudge the forecast up by about US$50 per ounce, pushing it closer to US$3,050. On the other hand, if the Fed doesn’t cut rates as much as anticipated, the forecast might drop by around US$100 from the baseline.

Either way, the quiet but persistent appetite for gold among central banks (led by China’s discreet hoarding) strengthens the case that gold’s long-term trajectory remains decidedly upward, especially as central banks hedge against a world that feels less certain with each passing day.