China’s Gold Demand Fuels Record-Breaking Rally, Surpassing $2,400 per Ounce
Gold has reached unprecedented heights, surpassing $2,400 per ounce this year, captivating global markets. At the forefront of this remarkable surge is China, the world’s largest producer and consumer of the precious metal.
Driven by escalating geopolitical tensions and the anticipation of lower US interest rates, gold has become an attractive investment option.
However, it’s the relentless demand from China across various sectors that has propelled the rally to new heights.
Traditionally, China and India have competed for the title of the world’s largest gold buyer. Yet, recent trends show a significant shift, with China surpassing India as the dominant purchaser.
Chinese demand for gold jewelry, bars, and coins soared to record levels last year, marking a 10% increase in jewelry demand and a staggering 28% surge in bar and coin investments.
Philip Klapwijk, Managing Director of Precious Metals Insights, highlights the conducive environment for gold investment in China. Limited investment avenues, coupled with uncertainties in the property sector and volatile stock markets, have led investors to seek refuge in assets perceived as safer, such as gold.
Despite being a leading gold producer, China relies heavily on imports to meet its demand. Over the past two years, imports have exceeded 2,800 tons, surpassing the reserves of many exchange-traded funds and a significant portion of the US Federal Reserve’s stockpiles.
Notably, the People’s Bank of China has embarked on a prolonged buying spree, purchasing gold for 17 consecutive months. This unprecedented move reflects China’s strategy to diversify reserves and hedge against currency depreciation, positioning gold as a vital component of its monetary policy.
China’s insatiable appetite for gold is evident in its willingness to pay premiums over international prices, even amidst record-high prices and a weaker yuan. The Shanghai Gold Exchange reported a premium of $89 per ounce, significantly above historical averages.
While exorbitant prices may dampen enthusiasm elsewhere, Chinese consumers remain undeterred, contributing to the market’s resilience.
Despite regulatory measures aimed at curbing excessive risk-taking, China’s demand continues to bolster gold prices, suggesting a sustainable rally.
In addition to physical gold, Chinese investors are increasingly turning to exchange-traded funds as a convenient investment option. Mainland China has witnessed consistent inflows into gold ETFs, contrasting with outflows observed in other parts of the world.
As uncertainties persist in global markets, China’s unwavering demand for gold is expected to persist, reinforcing its status as a crucial driver of the historic rally.
