China Is Buying A LOT of Gold
In a Nutshell
China is accumulating physical gold at record pace as central banks and retail investors rotate out of a financialized dollar system. The US is attempting a Hamiltonian reversal—using tariffs and industrial policy to rebuild factories—but this creates an impossible triangle that requires weakening the dollar and settling trade imbalances in gold. Gold must reach roughly $38,000 per ounce to balance China's trade surplus, and both the US and China are positioning gold as the neutral reserve asset that absorbs this transition.
These notes were generated by AI and may contain inaccuracies.
Last week, the biggest exchange traded fund in China that ordinary Chinese people put their money into became a gold ETF. In the US, most people invest in the S&P 500 through ETFs like VO. China has an equivalent fund that was recently surpassed by the Guan Yu Gold ETF, which now holds $13 billion compared to $12 billion in stocks. In the second biggest economy in the world, the biggest chunk of retail investor money is now sitting in gold.
This shift is happening while gold prices are crashing. Gold peaked at around $5,600 an ounce earlier this year and then went down almost 30% below $4,000. During this decline, China was buying significantly more gold. The People's Bank of China bought gold for the 20th month in a row, the longest streak going back to at least 2015. In June, they bought almost 15 tons of gold, the biggest monthly buy since October 2023. China also imported roughly 700 tons of gold in the first 5 months of this year and over 14,000 tons combined since 2015.
The People's Bank of China is not alone. The world's central banks bought 41 tons net in May alone. Countries including Poland, Uzbekistan, and Kazakhstan are also buying gold. On July 24th, four of China's biggest banks are shutting down retail gold trading to ensure ordinary Chinese citizens buy real gold rather than paper representations.
US Treasury Secretary Scott Bessent visited Fort Knox and confirmed all gold is present and accounted for. The US has the largest gold reserves in the world, over a trillion dollars at current market value. Bessent's plan for the US economy is referred to as Hamiltonian economics. A Wall Street Journal op-ed outlined this approach and explained why central banks are buying gold and why some analysts calculate gold must reach $38,000 per ounce for the global economy to balance.
Luke Groman from FFTT connected the dots including Scott Bessent's op-ed on Hamiltonian economics, which outlines how countries become superpowers. Every country that became rich used protective policies and taxes, then preached free trade to others after winning.
On December 5, 1791, Alexander Hamilton, America's first Treasury Secretary, presented his report on manufacturers to Congress. At the time, the US had about 4 million people, mostly farmers, with virtually no factories. Almost everything manufactured was imported from the British Empire. Hamilton stated that a nation that cannot make the things it needs is not actually an independent nation. If an economy depends on an adversary, it remains a colony.
Hamilton's solution was a two-part plan: tariffs or taxes on foreign goods, and subsidies for American industry. The goal was to protect young American companies, called infant industries, until they became big enough and efficient enough to compete globally. This became the US operating system for about 150 years. Thanks to this system throughout the 1800s, the US went from a country of farmers with no factories to the biggest industrial power in the world.
Trump referenced this system in a speech, stating that instead of taxing citizens to enrich foreign nations, foreign nations should be tariffed and taxed to enrich citizens.
This plan has always led to the destruction of empires when another country rises to take power. The most recent example is the British Empire, which began its decline in 1846 when Britain eliminated the corn laws and converted to preaching free trade. By 1931, Britain had de-industrialized with factories closing and industry moving elsewhere, ending the British Empire's global leadership. The global leadership transferred to the US, a process that took about 85 years.
For the US, the process started in 1971 when the dollar came off the gold standard, eventually leading to factories leaving the US. This de-industrialization occurs through securitization, when a country creates a paper market where more income comes from shuffling paper instead of making real things. All empires eventually financialize their economies by creating stock markets and financial products.
Financialization creates structural incentives for empire decline. Instead of building things, countries buy their own stocks through share buybacks. Costs are lowered by using cheaper imported parts and giving jobs to lower-wage foreign workers rather than domestic workers. Factories leave, stock prices go up, and the nation loses its ability to make things. Over long periods like 85 years, countries lose capacity to build weapons and defend themselves.
Since 2000, prices of TVs declined 98%, toys declined 74%, and software declined 73%. Items that could not be shipped from China increased in price: housing rose 111%, child care rose 159%, college tuition rose almost 200%, and hospital services rose 281%. America was hollowed out from the inside, asset owners got richer on paper, consumers got cheap goods, and the nation gave up its industrial base and high-paying jobs.
The US is attempting to return to the Hamiltonian economic system through tariffs. In January, US Trade Representative Jameson Greer gave a speech at Davos about returning to Hamiltonian economics. On June 23rd, Treasury Secretary Scott Bessent published the Wall Street Journal op-ed named "Hamilton inspires Trump's economic statecraft" outlining five core principles.
The five principles are: economic security starts with national capacity meaning factories are needed again; America's openness will be matched by reciprocity meaning mutual market access; America will rewrite the rules of the next economy; financial leadership is a central instrument of statecraft meaning countries should use dollars, price oil in dollars, and buy US treasuries; and economic statecraft must serve the American people.
These principles create an impossible triangle. The US is trying to rebuild factories, protect Main Street, and keep the dollar strong simultaneously. Only two can be achieved at once. Rebuilding factories and protecting Main Street requires a weaker dollar. Protecting Main Street and keeping the dollar strong means cheap imports continue and factories never return. Rebuilding factories while keeping the dollar strong requires huge tariffs that cause inflation.
Scott Bessent is expected to sacrifice the dollar's strength. The escape valve is gold, a neutral reserve asset disconnected from any country's currency that can absorb the dollar's price adjustment without destroying the economic system.
China has been building this system since 2009. After the global financial crisis when Lehman Brothers collapsed and the Federal Reserve printed money aggressively, China held trillions in US treasuries. In March 2009, the governor of China's central bank published "Reform the International Monetary System," stating the goal should be an international reserve currency disconnected from individual nations that remains stable long-term, removing deficiencies caused by credit-based national currencies.
The governor referenced John Maynard Keynes' 1940s idea of a neutral international currency called the Bancor, based on a basket of about 30 commodities. The system would punish both trade deficits and surpluses to keep global trade balanced. In 1944 at Bretton Woods, the United States had a giant trade surplus and rejected the proposal. The dollar system emerged instead.
Jameson Greer acknowledged at Davos that Keynes' creative ideas were left out at Bretton Woods and the system lacked structural mechanisms to discourage imbalances because the United States had a big trade surplus at the time. In 2009, China quoted Keynes saying the dollar system is broken. Seventeen years later, the United States is now quoting the same economist making the same argument.
In 2010, World Bank President Robert Zoellick, former US Treasury official, wrote in the Financial Times that the world should consider using gold as an international reference point for the monetary system. In 2016, former IMF chief economist Ken Rogoff wrote that emerging markets should convert reserves into gold, noting that gold does not have the problem of unlimited supply because there is no limit on its price.
Gold cannot balance trade at current prices. The estimated price required is $38,000 per ounce. This figure comes from dividing China's last trade surplus of around $1.2 trillion by China's gold imports of 940 tons last year, representing the price at which China could settle its trade surplus in gold.
Evidence supporting this theory includes the People's Bank of China buying gold for 20 straight months, including its biggest purchase in almost 3 years, while prices crashed 30%. World central banks have bought roughly 1,000 tons of gold per year for 3 years, double the previous decade's pace. Countries including Poland, Uzbekistan, Kazakhstan, and China are net buyers. China is shutting down paper gold trading so citizens hold physical gold. US non-monetary gold exports have increased significantly since the fourth quarter of last year following US-Chinese official meetings.
Luke Groman predicted that under the Hamiltonian system, the US would export significant amounts of gold in USD terms to China, which is already occurring.
There are two possible outcomes. The first is that the MAGA plan fails, re-industrialization does not occur, debt continues growing, confidence breaks, and the post-1971 financial system collapses like the period from 1922 to 1945, which included a depression, currency collapses, and world war. In this scenario, gold would skyrocket. The second outcome is that the plan works, the US re-industrializes, trade gets rebalanced, and the world transitions in a controlled way to a system where gold serves as the neutral
A reserve asset that settles trade, similar to what China proposed in 2009 and what Scott Bessent is currently discussing, would represent the preferred path. Both potential roads lead to the same outcome, with the only unknown variable being the speed and pain level of the transition process.
The most likely outcome involves capital rotation from financialized America into real-world America, including infrastructure and commodities. In this scenario, inflation will outperform the dollar, the stock market will outperform both inflation and the dollar, and gold will outperform everything else.
Starting from early 2018 when the first China trade war began:
- The S&P 500 is up 161% in dollar terms, but down 15% when measured in gold
- Long-term Treasury bonds are down 31% in dollars and down 78% when measured in gold
- Gold miners are up over 200%
Dollar prices displayed on screens represent an illusion because when measured in real money that cannot be inflated, the safest assets have performed the worst, while gold has been the best-performing asset.
Gold is unlikely to reach $38,000 an ounce next week or next year, as the process will not occur overnight. Significant accumulation continues between nations and central banks. The information is not secret—it has appeared in the Wall Street Journal and was announced at Davos—but remains hidden in plain sight with limited public attention.
The process could take more than a decade to fully develop. Being right on the direction differs from being right on timing. The speaker does not currently hold gold but monitors daily for a safer entry point. Major corrections will likely occur along the way, even for gold. Any future purchase decision and related commentary would appear in the premium member section.
Keep Andrei Jikh in your library
Save the videos and channels worth coming back to, and find them again in one place.
