Why does China buy gold?

Experts say that Beijing's gold purchases indicate a shift away from reliance on US dollar assets.

Analysts say China is increasing its gold reserves in an effort to reduce its reliance on U.S. dollar assets and hedge against financial and geopolitical risks, while households turn to the precious metal amid uncertainty about the domestic economy.

The People's Bank of China bought gold for the 23rd straight month in September, when the country's central bank also made its biggest monthly purchase in three years. Experts say sustainable buying refers to a long-term effort to spread the risk associated with its huge reserves.

Among the concerns are high US debt and asset freezes by Western governments, which have highlighted the risk inherent in holding money abroad, particularly for emerging market economies and economies of the global south. Gold purchased and stored domestically protects against this risk because access is no longer dependent on the will of the government.

But the purchase of the central bank and the demand of households for gold in China have different drivers. As Beijing manages its financial exposure, private investors are looking for a place to stash their savings. Here's what we know.

China's central bank added about 23 tons of gold in September, bringing its reported reserves to about 2,410 tons, according to the World Gold Council. This was its biggest monthly purchase since October 2023. Gold accounted for 8.5 percent of China's total official reserves at the end of September, compared to 5.5 percent at the end of 2024.

Reserves are assets held by central banks to ensure international payments and respond to financial disturbances. They usually include foreign currencies, foreign government debt and gold.

Private demand for gold in China has also increased, with purchases of gold bullion and coins in the first half of 2026 up 28.4 percent year-on-year, according to the China Gold Association. Gold buying has continued amid falling prices, with gold down about 8.5% over the month.

The World Gold Council attributed the drop in gold prices in part to a stronger dollar and higher yields on U.S. government debt. With interest rates rising in an attempt to curb inflation, these investments are attractive to buyers because they pay interest and are more attractive to private investors than gold, which is not.

A key goal is to reduce reliance on US government debt, known as Treasuries, according to Thu Lan Nguyen, head of commodity research at Commerzbank in Frankfurt.

China has significant reserves of dollar-denominated assets, so buying gold reduces exposure to decisions made in Washington. "China's gold purchases are part of a broader effort to make the country's reserves more flexible," Nguyen told Al Jazeera.

Western countries' freezing of about $300 billion of Russian central bank assets abroad after Moscow's invasion of Ukraine in 2022 showed how reserves held abroad can quickly become inaccessible.

The concern for China may be that a future confrontation with Washington could expose some of its assets abroad to similar restrictions. "Gold held domestically has a critical advantage in this respect: it is not claimed by another country and is therefore less subject to sanctions or asset freezes," Nguyen said.

Referring to the increase in geopolitical tensions and economic and financial risks, he added: "I interpret it mainly as risk management.

The soaring U.S. debt, which earlier this year hit $40 trillion for the first time in history, is another source of uncertainty. In February, the US Congressional Budget Office projected that the federal debt held by the public would rise from 101% of the size of the US economy in 2026 to 120% in 2036. Most of this debt is held by China. Therefore, gold offers a low-volatility and low-risk asset to hold.

Chinese families have different motives for buying gold. When confidence in other investments weakens, gold can become more attractive as a way to hold savings. "The strong demand for gold could partly reflect the search for alternative stores of value," Nguyen said.

The World Gold Council has identified China's weak stock markets as one of the factors supporting domestic demand for gold, while its property market is under pressure from heavy borrowing and overbuilding that is contributing to the fall in house prices, making it a weaker investment.

Analysts warned that China's increased gold purchases did not mean an imminent end to the dollar's global dominance. "I would be cautious about characterizing this as a major shift away from the dollar," Nguyen said. "The dollar remains largely the world's dominant reserve currency."

But if China and other central banks allocate more of their new reserves to gold and buy fewer assets than the U.S. normally does, the gradual shift could still matter. This could weaken one source of demand for US government debt. But its impact depends on how wide and fast the change is developed.

"So the key is that this is probably a slow diversification process rather than a sudden abandonment of the dollar," Nguyen said. He added that the consequences for the US economy will remain limited unless the process is significantly expanded and accelerated.

Central banks also need foreign currency available to support international payments, and the dollar plays a central role in these transactions. So gold can provide financial protection, but it cannot directly replace all the functions of dollar reserves.

Nguyen said China is part of a broader trend, particularly among central banks in emerging economies.

"This trend is particularly visible among emerging market central banks," Nguyen said. But sanctions are only part of the story."

Poland has also become a more prominent buyer. Its central bank bought 31 tonnes in the first quarter of 2026 and another eight tonnes in July, according to the World Gold Council.

Large holdings do not necessarily indicate recent acquisitions. For example, India confirmed in June that its physical gold reserves remained unchanged at around 880.5 tonnes. According to the World Gold Council, India's gold reserves have not changed much since mid-2025. The country bought about four tons in 2025, which was a decrease compared to 73 tons in 2024.

Despite China's continued purchases, its reserves are far lower than those of the United States. Its reserves of around 2,300 tonnes at the end of 2025 were less than a third of the US reserves of around 8,133 tonnes.