Concerns about high debt and an overvalued currency are sucking gold imports into China, according to a new report from Lombard Street Research.
It adds that the authorities may possibly be moving in the direction of using gold in a plan to make the yuan an international currency.
Beijing has said that it does not view gold as a useful asset for diversifying the country's $3.8 trillion worth of foreign exchange reserves, according to media reports.
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China's official reserves of gold stand at 1,054 metric tons, that's worth about $45 billion. This figure has not been updated since 2009 and Lombard says the number may not be accurate because since that last update imports of gold and domestic production amount to over 4,500 metric tons.
"The massive flow of gold into the country does make it seem plausible that they [China's authorities] could be moving in the direction of using gold in the effort to internationalize the currency and escape what is seen as a domineering dollar," Lombard economist Freya Beamish said in a note published late Wednesday.
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In fact, latest official data shows that China imported and produced more gold last year than its consumers bought, fueling speculation that the authorities took last year's dive in the price of gold to build up holdings of the precious metal. Gold prices fell 28 percent last year.
"I wouldn't be surprised if import numbers hold up as there was some evidence that that Chinese were buying a lot of metals near their lows last year," Sean Darby, chief global equity strategist at Jefferies, told CNBC. He was referring to data on Wednesday that showed China's imports rose 10 percent in January, from the year-ago period, while exports jumped an annual 10.6 percent.
The yuan traded around 6.0657 per dollar early on Thursday. It has steadily been appreciating since it was unpegged from the greenback in 2005 and had strengthened about 25 percent since then.
In recent years, the yuan has gained ground as a global currency as Beijing eases its control of the yuan – also known as the renminbi – and opens up China's financial markets to foreign investors.
According to Lombard, gold imports from Hong Kong took off in 2011, when it estimates the yuan first entered overvalued territory.
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"Not only does renminbi overvaluation make it directly sensible for Chinese investors to dump the currency in favor of gold, it also brings Chinese liabilities into question in general," Beamish said.
"With the renminbi this overvalued, China now seems incapable of growing without debt injections and that is a situation that can only end in crisis or renminbi depreciation or some combination thereof. Gold is a natural hedge in any of those scenarios," she added.
-By CNBC's Dhara Ranasinghe. Follow her on Twitter at @DharaCNBC