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Gold’s rise to all-time highs above $2,400 an ounce this year has captivated global markets, and China is front and centre of the extraordinary ascent.
China is the world’s biggest producer and consumer of the precious metal.
Worsening geopolitical tensions, including war in the Middle East and Ukraine, and the prospect of lower US interest rates all burnish gold’s billing as an investment.
But juicing the rally is unrelenting Chinese demand, as retail shoppers, fund investors, futures traders and even the central bank look to bullion as a store of value in uncertain times.
China and India have typically vied over the title of world’s biggest buyer. But that shifted last year as Chinese consumption of jewellery, bars and coins swelled to record levels.
China’s gold jewellery demand rose 10 per cent while India’s fell 6 per cent. Chinese bar and coin investments, meanwhile, surged 28 per cent.
There is still room for demand to grow, said Philip Klapwijk, managing director of Hong Kong-based consultant Precious Metals Insights. “Amid limited investment options in China, the protracted crisis in its property sector, volatile stock markets and a weakening yuan are all driving money to assets that are perceived to be safer.”
He also said, “The weight of money available under these circumstances for an asset like gold – and actually for new buyers to come in – is pretty considerable.”
“There isn’t much alternative in China. With exchange controls and capital controls, you can’t just look at other markets to put your money into,” he added.
Although China mines more gold than any other country, it still needs to import a lot and the quantities are getting larger. In the last two years, overseas purchases totalled over 2,800 tonnes – more than all the metal that backs exchange-traded funds (ETFs) around the world, or about a third of the stockpiles held by the US Federal Reserve.
Even so, the pace of shipments has accelerated lately. Imports, which surged in the run-up to Chinese New Year, a peak season for gifts, and over the first two months of the year, are 53 per cent higher than they were in 2023.
The People’s Bank of China has been on a buying spree for 17 straight months, its longest-ever run of purchases, as it looks to diversify its reserves away from the US dollar and hedge against currency depreciation.
It is the keenest buyer among a number of central banks that are favouring gold. The official sector snapped up near-record levels of the precious metal last year and is expected to keep purchases elevated in 2024.
It is indicative of gold’s allure that Chinese demand remains so buoyant, despite record prices and a weaker yuan that robs buyers of purchasing power.
As a major importer, gold buyers in China often have to pay a premium over international prices. That jumped to $89 an ounce at the start of the month. The average over the past year is $35 versus a historical average of just $7.
For sure, sky-high prices are likely to temper some enthusiasm for bullion, but the market’s proving to be unusually resilient. Chinese consumers have typically snapped up gold when prices drop, which has helped establish a floor for the market during times of weakness.
Not so this time, as China’s appetite is helping to prop up prices at much higher levels.
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