China is implementing sweeping changes to the structure of its gold market, in a move that could reshape the global monetary system. These strategic initiatives include expanding vaulting capacity, creating new clearing systems, and easing import restrictions — all aimed at cementing China’s role as a pivotal player in the global gold trade and potentially challenging the dominance of the U.S. dollar.

China’s gold policies go beyond simply accumulating reserves; they represent a comprehensive approach to redefining how gold is traded, stored, priced, and used in international commerce. By building alternative trading mechanisms and physical infrastructure, China appears to be developing a parallel system that operates under different rules and priorities than the Western-dominated markets.

Expansion of the “Hong Kong Gold Hub”

Recent policy moves in Hong Kong mark a key step in China’s gold strategy, reflecting long-term commitment to developing the gold market.

The new policies aim to boost bullion storage capacity in Hong Kong to 2,000 tons — a major expansion that can accommodate massive physical reserves of gold. This capacity is not limited to domestic holdings; it is believed to be designed to also serve international participants seeking alternatives to traditional Western vaults.

Most importantly, Hong Kong is creating a centralized clearing system dedicated to gold transactions. This infrastructure will provide the “financial plumbing” necessary to settle deals outside Western systems, potentially reducing reliance on institutions such as COMEX and the London Bullion Market Association (LBMA).

With these developments, Hong Kong positions itself as a major global gold trading hub, operating with infrastructure independent of Western financial systems and offering an alternative path for nations wishing to conduct transactions outside conventional channels.

Strategic Growth of the Shanghai Gold Exchange

Since its establishment in 2002, the Shanghai Gold Exchange (SGE) has grown from a local trading platform into a globally influential institution.

In a notable step, the SGE opened its first offshore vault in Hong Kong in 2023, expanding its physical footprint beyond mainland China. At the same time, it launched two new gold contracts designed specifically for international investors — a clear signal of Beijing’s intent to attract greater global participation.

These new contracts allow for gold trading denominated in yuan rather than dollars, supporting China’s goal of internationalizing its currency with gold as the trust anchor. By leveraging gold’s universal acceptance, China seeks to boost confidence in yuan-denominated transactions.

The SGE’s approach emphasizes physical delivery of gold, in contrast to Western markets dominated by paper derivatives. By requiring delivery for most trades, the exchange ensures the market more accurately reflects real-world supply and demand.

Why is China Prioritizing Gold in its Economic Strategy?

China’s gold policies represent a coordinated strategy that goes well beyond asset accumulation, addressing multiple economic and geopolitical objectives simultaneously.

Gold plays a dual role in Beijing’s strategy: as both a financial asset and a geopolitical tool. This provides China with a unique mix of economic security and strategic flexibility in an increasingly uncertain global environment.

Reducing Reliance on the Dollar

China’s new gold infrastructure creates a mechanism to reduce dependence on the U.S. dollar in global trade and finance.

This system allows transactions to be settled without using the dollar, enabling trading partners to bypass it when necessary. In this setup, gold functions as a neutral safe-haven asset — free from counterparty risk and beyond the control of any single nation.

Most importantly, the system provides a sanctions-resistant financial channel. Since Western sanctions on Russia in 2022, many countries have recognized their vulnerability within the dollar-based system and begun searching for alternatives. China’s gold architecture now offers a practical option.

By linking the yuan to gold through these mechanisms, Beijing strengthens trust in yuan-based transactions without the need for a formal gold standard, allowing for gradual adoption rather than disruptive shocks to markets.

Gaining Influence Over Commodity Pricing

Through its gold policies, China also seeks to enhance its influence over the pricing of key commodities vital to its economy.

For years, China has been vulnerable to Western-dominated pricing systems, particularly for the massive volumes of resources it imports. By developing alternatives to COMEX and the LBMA, Beijing aims to gain greater sway over valuation.

The emphasis on physical delivery in Chinese exchanges allows for price discovery based on the real bullion market, unlike Western exchanges where paper contracts vastly exceed the volume of available gold, often distorting prices.

This approach reduces exposure to perceived “price manipulation,” a frequent concern among Chinese officials and traders who argue that paper contracts are sometimes used to artificially cap prices. As a result, China gains both economic and strategic advantages in global commodity markets.

Integration with the Belt and Road Initiative

Gold plays a central role in the Belt and Road Initiative (BRI), China’s massive infrastructure development program launched in 2013.

The new gold market infrastructure provides a reliable settlement mechanism for BRI partners who may be reluctant to increase exposure to dollar-denominated debt or assets. By offering gold as an alternative, China makes participation more attractive to nations seeking to reduce reliance on the Western financial system.

This framework offers an option beyond dollar-based financing for infrastructure, while also strengthening economic ties between China and resource-rich countries in Africa, Asia, and Latin America.

By building alternative financial channels, China deepens its economic ties with these nations while reducing its own reliance on Western systems — bolstering its long-term security and global economic influence.

Palladium prices fell during Wednesday’s trading amid a stronger U.S. dollar against most major currencies, as well as concerns over weaker demand for metals due to the impact of tariffs.

This comes as weak economic data continued to emerge from China last week. August figures showed that industrial production, retail sales, and fixed-asset investment all grew below expectations. The unemployment rate also unexpectedly rose to 5.3%.

These data followed soft inflation figures from China just days earlier, which confirmed persistent disinflationary pressures in the world’s second-largest economy, raising further concerns about Chinese demand.

Separately, the ongoing Russia-Ukraine war continues to cast a shadow over markets, particularly metals, with Moscow being one of the world’s largest palladium producers.

U.S. President Donald Trump acknowledged today that ending the Russia-Ukraine war is difficult under current conditions, adding that he was disappointed in President Vladimir Putin.

Meanwhile, the U.S. dollar index rose by 0.6% to 97.8 points as of 15:03 GMT, recording a high of 97.9 and a low of 97.2.

In trading, December palladium futures dropped 1.3% to $1,236.1 an ounce as of 15:03 GMT.

Bitcoin declined slightly on Wednesday, continuing the downward trend that began with a sharp liquidation wave earlier this week, while traders continued to assess cautious remarks from Federal Reserve Chair Jerome Powell, with anticipation for the release of key US inflation data.

Bitcoin was last down by 0.2% to trade at $112,790.5 as of 02:11 AM Eastern Time (06:11 GMT), remaining near its lowest levels in two weeks.

Bitcoin holds its losses after liquidation wave… and anticipation of Fed policy

Bitcoin had dropped by nearly 3% on Monday, after about $1.5 billion worth of positions were liquidated in the cryptocurrency market in a single day.

This wave of liquidations was the largest since last March, and it led to forced selling in derivatives markets, causing sharp losses for Ethereum and other altcoins.

The decline was further exacerbated by some traders’ positioning in directional bets through options contracts, which benefit from sharp volatility, according to reports.

This collapse came just days after Bitcoin and other digital assets initially rallied following the Fed’s move to cut interest rates by 25 basis points last week, in the first monetary easing in several months.

But that optimism did not last long, as risk appetite quickly reversed with the cautious tone adopted by the Fed regarding monetary policy outlook.

In his speech, Fed Chair Jerome Powell said the central bank must act cautiously in considering further reductions in borrowing costs. He acknowledged that labor market weakness may allow room for additional easing, but warned that excessive cuts could undermine progress made in fighting inflation.

Attention now turns to the release of the Personal Consumption Expenditures (PCE) price index in the United States, the Fed’s preferred measure of inflation, scheduled for Friday.

Bloomberg: Tether seeks to raise up to $20 billion at $500 billion valuation

Bloomberg reported on Tuesday that Tether, based in El Salvador and issuer of the USDT stablecoin, is in early talks to raise between $15 billion and $20 billion through a private placement, in a deal that could value the company at about $500 billion.

According to the report, the proposed deal would involve the sale of around 3% of the company’s shares.

CEO Paolo Ardoino said on Wednesday that the company is indeed considering raising capital from a group of prominent investors.

Oil prices rose on Wednesday after an industry report showed a decline in US crude inventories last week, amid growing market concerns over tight supply due to export disruptions in Kurdistan and Venezuela, as well as Russian supply outages.

Brent crude futures gained 40 cents, or 0.6%, to $68.03 a barrel by 1000 GMT, while US West Texas Intermediate (WTI) crude rose 38 cents, or 0.6%, to $63.79.

Tamas Varga, analyst at PVM Oil Associates, said: “The market had been expecting a supply surplus and global inventory build-up in the final quarter of the year, but attention has recently shifted back to Eastern Europe and the possibility of new sanctions on Russia.”

He added that delays in resuming Kurdish oil exports, along with Chevron’s reduction of Venezuelan shipments due to issues with US permits, had added to short-term bullish momentum.

Both benchmarks had climbed by more than $1 per barrel on Tuesday after a deal to restart exports from Iraq’s Kurdistan region stalled, halting pipeline shipments that were expected to reach 230,000 barrels per day to Turkey. Flows through the line have been suspended since March 2023.

Elsewhere, US President Donald Trump said on Tuesday he believed Ukraine could retake all territories occupied by Russia, a sudden shift in rhetoric favoring Kyiv. Earlier this month, the Trump administration urged EU nations to accelerate efforts to phase out Russian oil and gas.

Russia, meanwhile, is facing shortages of certain fuel types, according to traders and distributors, as refinery operations decline due to Ukrainian drone attacks. Kyiv has stepped up strikes on energy infrastructure in a bid to reduce Moscow’s export revenues.

Iranian Oil Minister Mohsen Paknejad said on Tuesday that “no new burdensome restrictions” would be imposed on the country’s oil sales, stressing that exports to China would continue, even as Tehran and European powers struggle to reach an agreement to prevent the return of UN sanctions this week.

Data from the American Petroleum Institute (API) showed US crude and gasoline inventories fell last week, while distillate stocks increased, according to market sources.

Official US government energy data is due later on Wednesday. However, a Reuters poll of eight analysts ahead of the release suggested that crude and gasoline inventories likely rose in the week ending September 19, while distillate stocks were expected to decline.

On a broader level, the global oil market is bracing for oversupply and weaker demand. The International Energy Agency said in its latest monthly report that global oil supplies will expand at a faster pace this year, with the surplus set to widen further by 2026.