China’s official sector has continued to add to bullion reserves, as record imports coincided with efforts to reduce reliance on the US dollar. The People’s Bank of China has reported increases in official gold reserves for 23 consecutive months, including a 23-tonne addition in September following 20-tonne purchases in July and August; year-to-date it has reported 80 additional tonnes. Separately, claims have circulated that China holds more than 5,000 tonnes of monetary gold in Beijing, said to be more than twice the level publicly disclosed, while strong central bank demand and private-sector interest took Chinese gold imports to the highest level in more than a decade. At the same time, the central bank’s US Treasury holdings have fallen to the lowest level since 2008.
The shift is framed around two systemic risks: rising US debt and the dollar’s use in sanctions policy, reinforced after Western governments froze Russia’s central bank assets following the 2022 invasion of Ukraine. Gold stored domestically is presented as carrying limited counterparty risk, and Russia is cited as having used large reserves to support its economy during the war. The broader concern is that further de-dollarisation could weaken external demand for dollars, raising the risk of depreciation and higher US price inflation, while Chinese purchases are described as providing structural support for gold prices even as expectations of higher interest rates weigh on Western demand.
Implications for Gold Derivatives and Trading Strategies
We advise derivative traders to focus on long-biased gold strategies, such as buying call options or entering long futures contracts during short-term pullbacks. Central bank demand has created a strong structural floor, helping push gold prices above $2,600 an ounce after global central banks bought over 1,000 tonnes of gold annually in recent years. With estimates showing China secretly holds over 5,000 tonnes of physical gold, pullbacks in precious metal derivatives should be treated as buying opportunities rather than trend reversals.
Dollar Weakness and Inflation-Hedging Approaches
We must also position for persistent weakness in dollar-linked financial products as foreign nations trim their paper reserves. China has quietly slashed its holdings of U.S. Treasuries down to roughly $770 billion, a massive drop from the $1.3 trillion peak it held a decade ago. Traders should consider buying put options on the U.S. Dollar Index or setting up bearish currency spreads to profit from this steady capital exit.
We recommend using long-dated options strategies on hard assets to hedge against the threat of sudden inflation spikes in the coming weeks. Historical data shows that when major economic powers abandon a global reserve currency, sovereign debt yields become highly volatile and paper currencies lose purchasing power fast. Maintaining upside exposure to commodity derivatives while capping downside currency risk gives us the best risk-to-reward setup as de-dollarization accelerates.
