The great power competition between the United States and China spans multiple sectors of the global economy. Most recently, it has played a growing role in the rise of gold prices. In today’s political landscape, concerns about inflation, fiscal sustainability, and U.S. foreign policy toward China all influence the price of this valuable resource.
During periods of geopolitical uncertainty, gold is often purchased as a hedge against inflation. Given Donald Trump’s past relationship with Xi Jinping, his re-election brings reason to assume that tensions between China and the U.S. will escalate once again. The trade war that began in Trump’s first term caused a significant increase in gold prices.
Earlier this month, Goldman Sachs projected that gold could reach $3,300 per ounce by year-end, citing the high potential for increased U.S.-China tensions due to the Trump administration’s new tariffs. Both spot and futures gold prices rose 0.8 percent in response, while the threat of tariffs on Canada and Mexico further fueled concerns over geopolitical uncertainty.
While there is currently no fear of an outright war between the U.S. and China, the more realistic scenario involves retaliatory tariff policies, and the potential for low-level confrontations in the South China Sea. In both cases, gold is considered a safe haven, as its value remains more stable than fiat currency during inflationary periods.
Two main reasons explain why countries might choose to buy gold rather than hold U.S. government bonds or dollar reserves. First, Washington has the power to restrict nations from the SWIFT network, a global telecommunication network for financial institutions, as a means of enforcing sanctions. Buying gold helps countries mitigate the risk of being subjected to such financial restrictions.
The second factor is the growing influence of the BRICS group. With Beijing leading a de-dollarization strategy, BRICS nations aim to develop an international system less reliant on the U.S. dollar. Encouraging member states to accumulate gold serves as a crucial step toward this goal.
In the fourth quarter of 2024, China was the third-largest buyer of gold reserves globally, with India ranking second and Poland leading as the top buyer. India is not only a key member of BRICS but also the world’s largest democracy, making its gold purchases advantageous for China. If New Delhi becomes more open to conducting trade in currencies other than the U.S. dollar, it would further support China’s ambition to challenge the U.S.-led global financial order.
This is further supported by the fact that India and China are currently the two largest sellers of U.S. dollar reserves, which aligns with their recent surges in gold purchases and signals an effort to shift away from dependence on Washington’s financial dominance. Undermining U.S. economic influence has been a long-term objective of multiple China-led initiatives, giving Xi Jinping greater leverage on the global stage.
Additionally, some lawmakers, including Senator Rand Paul, have urged Elon Musk to conduct an audit of Fort Knox, the site where U.S. gold reserves—valued at approximately $426.3 billion—are held. The pressure stems from Musk’s newly established Department of Government Efficiency agency, which aims at reducing corruption and mismanagement in Washington. Fort Knox has not undergone an official audit since the 1950s, though there is little evidence to suggest that the quantity of gold has changed since then.
James Rickard, an investment banker and attorney, emphasized that an audit would primarily serve to restore confidence in the integrity of U.S. gold reserves rather than uncover any alterations in the total holdings. However, he noted that a potential finding could be the amount of gold leased to borrowers, a common practice to enhance liquidity in the banking system.
Overall, there are two key takeaways regarding gold’s current role on the international stage. First, China and India are increasing their gold purchases while reducing their U.S. dollar reserves, which aligns with Beijing’s strategy to shift the global financial order away from dependence on the dollar. Second, if Musk proceeds with a review of Fort Knox, it would likely serve to reaffirm confidence in the U.S. gold reserves, rather than reveal any substantial changes in their quantity.
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