As the world grapples with instability and uncertainty, China is becoming a driving force in the global gold market. Gold purchases supported by consumers, the central bank and speculators are driving prices to previously unimagined heights. The yellow metal has thus turned into an attractive refuge from economic fluctuations.
Gold Rush in China
In a turbulent and challenging time, gold seems like a safe haven. In response to the Russian invasion of Ukraine and the war in Gaza, the prices of the precious metal have skyrocketed. However, highs above $2,400 per ounce persisted longer than expected. The reason is China and its unquenchable appetite for gold.
While Chinese consumers’ confidence in traditional investments such as real estate and stocks is declining, interest in gold is growing tremendously. China’s central bank has been relentlessly adding to its gold reserves, weakening its reliance on the US dollar and buying up foreign currencies used to buy the yellow metal. At the same time, speculators in Shanghai are betting on further strengthening of gold.
Popular golden beans
In this euphoria, tiny gold “beans” resembling gold stones gained enormous popularity. Ms. Lin, a 25-year-old office worker, buys them every month. “I’m still trying to save more,” explains his admiration for cheap, lively gold investments in the shape of tempting bobs.
Internet sellers are cleverly fueling this phenomenon. One merchant described buying beans as “shopping but investing.” Tiny gold was to be had in faithful imitations of nuts or other fruit, for the price of one meal.
Why honey?
Investing in gold has become more attractive as traditional investments lose their appeal. China’s real estate sector, where the savings of most families go, is facing a crisis. Investor confidence in the country’s stock markets has not fully returned, and a number of large investment funds targeting the wealthy have collapsed after failed real estate bets.
With a lack of better alternatives, money is flowing into Chinese gold-trading funds, and lots of it young people set out to collect just the little golden beans.
China as the driving force
“China is undoubtedly the driving force behind the price of gold,” confirms Ross Norman, CEO of MetalsDaily.com. “The flow of gold into China has gone from solid to an absolute torrent.” Strengthening Chinese demand is driving prices higher despite factors such as high interest rates and a strong dollar.
Analysts are convinced that the motivation of the Chinese has no economic justification, but rather stems from their fears and speculations. “The money has to go somewhere,” says teacher Kelly Zhong, who sees gold as a safer alternative to a chaotic world.
The central bank strengthens the position
Another important buyer of gold in China is the country’s central bank. In March, the People’s Bank of China replenished its gold reserves for the seventeenth month in a row. It bought more gold last year than any other central bank in the world, adding more to its reserves than it has in nearly 50 years.
Beijing has been buying gold to diversify its reserve funds and reduce its reliance on the US dollar, long considered the most important currency to hold in reserves. China has been reducing its holdings of US Treasuries for more than a decade. In March, China held about $775 billion worth of US debt, down from previous years.
Info sources: Reddit, https://forbes.cz/cena-zlata-na-rekordnim-maximu-poprve-pokorila-hranici-2400-dolaru-za-unci/, https://www.nytimes.com/2024/ 05/05/business/china-gold-price.html?unlocked_article_code=1.pk0.WSGG.DAeCmly3byiv&smid=nytcore-ios-share&referringSource=articleShare&sgrp=c-cb,
Preview photo: Pixabay
