Gold bars sold in Dublin, Ireland. File photo: AFP/TTXVN
Experts say that world geopolitical tensions are increasingly escalating, including conflicts in the Middle East and Ukraine, combined with the prospect of lowering US interest rates increasingly remote. has contributed to increasing the appeal of gold, a safe haven asset against geopolitical and economic risks. However, the main force pushing gold prices persistently higher is relentless demand from China, including retail shoppers, fund investors, traders in the futures markets and even the Bank. People’s Bank of China (PBoC, i.e. central bank).
Biggest buyer
China and India have for many years taken turns holding the position of being the world’s largest gold buyers. But the situation changed last year, when China’s consumption of jewelry, gold bars and coins hit record levels. China’s gold jewelry demand increased by 10%, while India’s decreased by 6%. Similarly, Chinese coin and gold bar investments increased by 28%.
Expert Philip Klapwijk, CEO of consulting company Precious Metals Insights Ltd based in Hong Kong (China), commented: “There is still space for growth demand.” In the context of relatively limited investment options in China, as the real estate crisis continues to drag on, the stock market continues to fluctuate and the weakening yuan has motivated Chinese people to Quoc moved money into assets considered safer.
Imported jump
Although China mines the most gold in the world, the country still has to import a lot and the quantity is increasing. Over the past two years, China’s foreign gold purchases totaled 2,800 tons, more than the total amount of the metal held by global exchange-traded funds, and about one-third of the Reserve’s total gold holdings. US Federal Reserve.
In particular, China’s gold import volume increased sharply in the run-up to the Lunar New Year, the peak season for gifts. In the first two months of this year, gold imports of the world’s second largest economy were 53% higher than the same period in 2023.
Central bank factor
The PBoC has increased gold purchases for 17 consecutive months. This is the longest purchase ever, aimed at diversifying the agency’s reserves, minimizing the risk of dependence on the USD and preventing the devaluation of the local currency.
China’s central bank is the most “enthusiastic” buyer among central banks. In 2023, the agency bought a near-record volume of gold and is expected to continue that purchase in 2024.
Retail market
China’s demand for gold from private buyers and gold jewelry is also very high, despite gold prices rising to record levels and a weaker yuan making gold more expensive.
As a large importing country, gold buyers in China often have to pay higher prices than the selling price on the international market. At the beginning of this month, the difference in China’s domestic gold price compared to the world was 89 USD/ounce. The full-year 2023 average for this price gap is $35 per ounce, well above the historical average of $7 per ounce.
To be sure, unimaginably high prices may dampen Chinese buyers’ enthusiasm for gold bars, but the country’s market is proving unusually resilient. Chinese consumers often buy gold when prices fall, which helps set a floor for the market during recessions. But things aren’t like that this time, as Chinese demand is helping push gold prices even much higher.
Expert Nikos Kavalis, CEO at consulting firm Metals Focus Ltd, said that showed the rally was sustainable and gold buyers everywhere would benefit from booming Chinese demand.
Capital flows from exchange-traded funds
Although less bustling, investment flows into gold through exchange-traded funds (ETFs) have also increased significantly recently. According to Bloomberg Intelligence, money flows into gold ETFs in mainland China regularly every month since June 2023. While capital outflows were strong from gold ETFs in the rest of the world.
It is estimated that inflows into Chinese gold ETFs have totaled 1.3 billion USD since the beginning of the year and 4 billion USD in inflows have flowed out from overseas gold ETFs. Restrictions on investing in China are a limiting factor in gold purchases from domestic ETFs, as Chinese people have fewer options outside of domestic assets and stocks.
Bloomberg Intelligence analyst Rebecca Sin said in a note that Chinese demand could continue to grow as investors seek to diversify their asset holdings.
