China's central bank has dramatically increased its gold reserves to approximately $375 billion, a move that coincides with escalating military tensions between the United States and Iran. The People's Bank of China reported holdings of about 74.19 million fine troy ounces by January 2026, marking a 15-month consecutive buying streak. This strategic shift is part of a broader diversification away from U.S. dollar-denominated assets, with China reducing its U.S. Treasury holdings by roughly $115 billion over an eleven-month period in 2025.
The geopolitical catalyst intensified over the weekend with coordinated U.S. and Israeli strikes on Iran, which reportedly resulted in the death of Iran's Supreme Leader, Ayatollah Ali Khamenei. Iran responded with missile strikes on Israel and American bases in Qatar, the UAE, Kuwait, and Bahrain. U.S. President Donald Trump stated strikes would continue until objectives are met, while Iran's national security chief, Ali Larijani, declared Tehran would not negotiate, signaling a prolonged conflict.
Financial markets reacted swiftly to the heightened risk. Spot gold prices surged 2.4% to $5,406 per ounce in early Asian trading on Monday, following a more than 3% gain the previous week. Gold has gained about 25% year-to-date, with February marking its seventh consecutive monthly gain—the longest streak since 1973. Analysts, including Michael Brown of Pepperstone, have identified key resistance levels at the late-January record high of $5,595 an ounce, with a potential move toward $6,000 by the end of 2026.
The conflict's impact extended to energy markets, with oil prices surging by the most in four years due to fears of disruption to the Strait of Hormuz, a critical global oil shipment route. The situation was exacerbated by Saudi Aramco halting operations at a refinery after a drone strike. Analysts at ING noted that any energy supply disruption would push gold higher through rising oil prices and inflation expectations.
Hong Hao, chief investment officer of Lotus Asset Management, observed, "Precious metals, oil and commodities are rising despite the dollar’s rebound. This demonstrates that these hard assets are the true hard currency during this extraordinary period." The broader trend shows central banks, particularly among BRICS nations, increasing bullion allocations as a hedge against geopolitical strain and potential payment disruptions.
