Gold Is Moving Back Into the Settlement System

Several developments reported today are worth considering together.

China is beginning to move larger volumes of physical gold from London to Hong Kong. At the same time, Hong Kong has launched a centralized gold-clearing and settlement system, Delivery Connect with the Shanghai Gold Exchange, and plans to expand its storage capacity to roughly 2,000 metric tons by 2030.

China is, in effect, assembling the entire chain: physical gold, storage, exchange trading, clearing, settlement and, eventually, its own price discovery.

There is an important detail here. This is no longer simply about Chinese gold.

The is Hong Kong as an International Reserve and Settlement Center

Hong Kong is seeking to turn the new infrastructure into an international reserve and settlement center linked to the offshore yuan. Beijing is simultaneously expanding yuan liquidity in Hong Kong, developing its bond market and preparing yuan-denominated gold futures.

In other words, gold is being incorporated into a much larger financial architecture.

At almost the same time, Russia is increasing its purchases of foreign currency and gold.

But there is another factor that makes these developments considerably more interesting.

The Persian Gulf is becoming a less comfortable location for one of the world’s major gold hubs.

Dubai has accounted for roughly 15% of global gold trade, making the United Arab Emirates, through Dubai, the world’s second-largest center for physical gold trading after Switzerland. In 2024 alone, the UAE’s foreign trade in precious metals reached roughly $170 billion.

Dubai sits at the intersection of flows from Africa, India, Central Asia and the Middle East. It represents a vast ecosystem of storage, refining, trading and financing.

But if instability around Iran, the Strait of Hormuz and the Persian Gulf becomes a long-term condition, a natural question follows:

Where does that Gold hub go?

And this is where Hong Kong begins to look very different.

China is building there, right now, precisely the infrastructure required to capture part of those flows.

Shanghai is China’s domestic financial core.
Hong Kong is its external financial gateway.

And gold is a reserve asset that could potentially facilitate settlement between different parts of an emerging Eurasian economic system.

Singapore is the obvious alternative. But I would be considerably more cautious about its prospects.

Singapore itself sits beside one of the world’s most important chokepoints: the Strait of Malacca. If the current global conflict is increasingly becoming a contest over logistics corridors and strategic chokepoints, it is difficult to imagine Malacca remaining outside that contest.

We have already seen how a relatively localized force such as the Houthis can dramatically increase the cost of using the route through Bab el-Mandeb — or effectively shut it down.

There is no reason to assume that a similar model of asymmetric pressure could not eventually emerge in Southeast Asia, albeit involving different actors and operating under a different name. I have written about this possibility repeatedly this year.

Singapore would then find itself in a highly vulnerable position.

In a sense, Singapore is a former British trading outpost whose extraordinary rise was built on servicing global maritime traffic through one of the world’s principal chokepoints. As long as the global maritime system remains integrated, that geography is an enormous advantage.

If that system fragments into competing regional blocs, the same geography could become a strategic liability.

That is why, for now, I would be watching Hong Kong most closely.

Three processes are unfolding simultaneously.

Physical gold is gradually moving from West to East. Who says Switzerland will retain its current position indefinitely?

The Persian Gulf is becoming increasingly risky for the old architecture of the gold trade.

And China is building its own infrastructure for gold storage, clearing and settlement precisely as global commodity and financial flows begin to be redistributed.

If our thesis about the emergence of separate currency blocs is correct, each bloc will eventually require its own banks, exchanges, custodians, clearinghouses and reserve assets.

And that brings us to the central question.

Is China building Hong Kong because it expects to capture a larger share of the global gold market there?

Or is the growing instability around the established trading hubs simply accelerating a process that Beijing began preparing for long ago?

Either way, I would now watch something more important than the gold price itself.

Watch where the metal physically moves.

Watch where new storage capacity is being built.

And watch who is building clearing and settlement infrastructure around it.

That is where the outlines of the world’s emerging financial map will gradually become visible.