[Gold Shaken by U.S. Inflation Data: Plunges 26% From Its Peak]

As international gold prices fell by approximately 26% from their record high earlier this year, China—which had been aggressively buying gold—finds itself embarrassed by a massive valuation drop. Although China expanded its gold reserves for 23 consecutive months, the official valuation of its gold holdings shrank by approximately $64 billion (approx. 85.6 trillion KRW) compared to February. Households that turned to gold to escape turmoil in the real estate and stock markets are now similarly exposed to falling prices. The nation's long-term gold accumulation and citizens' investments in safe-haven assets are being tested simultaneously.

Spot gold traded at $4,165.12 per ounce, declining about 0.7% over the course of a week. Strong U.S. inflation data fueled concerns over additional Federal Reserve interest rate hikes, putting downward pressure on gold prices. What is more critical than the recent weekly drop is the gap from the peak recorded early in the year. Compared to the all-time high of $5,594.82 set on January 29, prices have dropped by roughly 25.6%—meaning investors who bought at the peak have seen nearly a quarter of their capital erased.

While gold gains traction during periods of inflation anxiety, it can weaken when interest rates rise to curb inflation, as gold itself yields no interest. As yields on U.S. Treasuries increase, the relative attraction of holding gold diminishes. Even when war and rising oil prices heighten global anxiety, if that shock leads to monetary tightening in the U.S., it creates downward pressure on gold prices. Being a safe-haven asset does not guarantee price appreciation in every economic environment.

[Accumulated More, but Reserve Value Evaporates by $64 Billion]

Official statistics from China's State Administration of Foreign Exchange (SAFE) reveal the magnitude of the impact. The valuation of gold reserves fell from $387.588 billion (approx. 518.5 trillion KRW) at the end of February to $323.517 billion (approx. 432.8 trillion KRW) at the end of September—a decline of roughly $64.071 billion (approx. 85.7 trillion KRW). During the same period, physical holdings actually increased from 74.22 million ounces to 77.47 million ounces. Although the volume of gold stored in vault safes grew, its value converted into U.S. dollars shrank significantly. In the month of September alone, valuation dropped by approximately $26.6 billion (approx. 35.59 trillion KRW).

However, this $64 billion drop should not be interpreted as a realized loss against purchase costs. Gold acquired in past years at lower prices may still sit on unrealized gains. This figure represents the difference in portfolio valuation between two points in time, reflecting both price fluctuations and additional purchases. Nonetheless, the fact that overall valuation decreased while committing fresh funds to expand gold stocks is by no means trivial. It demonstrates that China's reserve assets were unable to escape the drop in global gold prices.

[Buying More Despite the Drop: The Price Tag of a Long-Term Strategy]

China persisted with purchases even in a falling market. According to data published on October 15 by the World Gold Council, the People's Bank of China (PBOC) added approximately 23 tons in September. This marks 23 consecutive months of purchases, bringing official holdings to around 2,410 tons. A central bank's long-term reserve asset management cannot be equated with an individual investor's dollar-cost averaging. However, as purchases continue, the impact of price volatility on overall reserve assets grows. A long-term strategic framework does not erase short-term valuation declines.

Undisclosed holdings add further uncertainty. Experts introduced estimates suggesting that China's actual gold purchases last year may have been significantly higher than officially announced. However, without knowing exact holdings, purchase timing, and entry prices, one cannot simply calculate losses as being double the official figures. The core issue here is opacity. The larger the volume of undisclosed holdings, the harder it becomes for outside observers to determine China's true exposure to falling gold prices.

[Citizens Forced to Endure Losses Before the State]

For households, the problem is far more immediate. Chinese investors shifted funds into gold ETFs to escape sluggish equity markets, and continuous purchase announcements by the PBOC helped sustain investment sentiment. However, despite a net inflow of 11 billion yuan (approx. 2.2 trillion KRW) in September, the total assets of Chinese gold ETFs contracted by 2% month-on-month due to falling gold prices. Even as new money flowed in, it failed to offset the price decline of existing assets. News of state purchases did not guarantee individual profits.

Of course, not all Chinese investors lost 26%. Actual returns depend on the timing of purchases and yuan-denominated pricing. At the end of September, gold priced in yuan was about 7% lower than at the beginning of the year. However, for those who committed lump sums at the peak or used leverage, the burden is heavy. Individuals needing to sell to cover living expenses or debt repayments cannot wait indefinitely for a rebound. If anxiety over diminished wealth translates into reduced spending, it could place further strain on domestic consumption.

The banking sector has also retreated from certain trading services. Industrial and Commercial Bank of China (ICBC) announced that it would suspend agency services for personal precious metal trading on the Shanghai Gold Exchange starting July 24. This should not be interpreted as a total halt to all gold trading in China or forced liquidations across the board. However, the scaling back of services by banks underscores the burden of managing risk in retail precious metal trading. Investing through a bank remains distinct from guaranteed principal safety.

[Why Times Insight | Gold in the State Vault Differs From Money in Citizens' Wallets]

The core of this issue lies in the difference between the timeframe the state can endure and the timeframe citizens can survive. A central bank can hold gold looking ahead years or decades. However, households face living expenses, children's education costs, and debt service dates next month. If authorities assumed citizens could endure the same risks simply because the government continued buying, that gap becomes painfully evident in a falling market.

First, the label 'safe asset' does not guarantee price stability. Individuals who have experienced losses in gold—after real estate and stocks—may feel that "no matter where money is placed, it is unsafe." As such experiences accumulate, the impulse to delay spending and investment while holding cash is likely to strengthen. This is a channel through which losses in gold investments could extend beyond asset markets to deepen weakness in domestic demand.

Second, reducing reliance on the dollar does not shield one from the impact of the U.S. financial environment. Gold serves as a diversification tool, but it reacts strongly to U.S. interest rates and dollar movements. This decline alone does not prove that China's de-dollarization strategy has failed. However, it exposes the structural limit: increasing gold reserves does not grant freedom from U.S. monetary policy. In attempting to reduce dollar asset risk, China simply absorbs the price risk of gold.

Third, what Beijing must guard against is public trust in asset protection. Gold prices may rebound, and long-term state purchases may yield results. However, if households realize losses before recovery takes place, that damage cannot be undone. While the state highlights increases in gold reserves, citizens ask how well their own wealth has been preserved. The true bill for China's gold fever may emerge beyond valuation drops in state vaults—manifesting instead in the losses borne by citizens and anxiety over the future.

One additional short-term variable remains: the Federal Reserve meeting on October 27–28. If an additional rate hike materializes, gold prices will retest the psychological support level of $4,000. In that scenario, a further reduction in the valuation of China's reserves at the end of October will be inevitable. Statistics on the PBOC's October gold holdings, set for release in early November, will also draw keen attention. If a 24th consecutive month of purchases continues at an expanded scale, it will signal Beijing's intent to stick to strategic accumulation even at the cost of absorbing losses. In any case, China appears unable to conceal its embarrassment over these price fluctuations. Yet, in current circumstances, China has no one else to blame.