Amidst global geopolitical and economic uncertainties, gold has emerged as a sought-after investment, experiencing a substantial surge in price. The Russia-Ukraine conflict and the Israel-Palestine conflict have heightened the demand for gold, but the prolonged and resilient rise of gold surpasses $2,400 per ounce, with China’s influence playing a significant role.
Gold has continued its ascent despite traditionally dampening factors such as higher interest rates and a robust US dollar. According to Bloomberg, Chinese consumers have turned to gold as a safe haven, bolstering its demand, due to dwindling trust in conventional investments like real estate and stocks. Concurrently, the People’s Bank of China has been steadily increasing its gold reserves while reducing its holdings of US debt, as reported by the New York Times.
Further contributing to the bullish trend, Chinese speculators anticipate a further increase in gold value. China’s substantial impact on the global gold market has become more pronounced during this recent uptrend, marked by a nearly 50% surge in global prices since late 2022. Despite traditionally dampening factors like higher interest rates and the US dollar, gold has maintained its growth.
As per Reuters, physical gold demand in India, the world’s second-largest gold consumer, remained subdued despite a minor price correction, as buyers expect a further decline. Meanwhile, Chinese premiums fell for the second consecutive week due to sluggish demand during the holiday period. In India, domestic prices dropped to approximately 70,500 rupees per 10 grams this week, following a record high of 73,958 rupees last month.
Despite the Federal Reserve’s indication of maintaining higher interest rates for an extended period, gold prices surged last month. Additionally, gold has sustained its appreciation despite the strengthening of the US dollar against nearly all major currencies worldwide this year. Although prices have retraced to approximately $2,300 per ounce, the sentiment prevails that the dynamics of the gold market are now less driven by economic fundamentals and more by the preferences and actions of Chinese buyers and investors.
Gold consumption in China witnessed a 6% rise in the first quarter compared to the previous year, as reported by the China Gold Association. This uptick follows a 9% increase observed last year. Amid the average performance of traditional investments, gold has emerged as an increasingly attractive option. China’s real estate sector, typically the primary destination for household savings, remains in turmoil. Similarly, investor confidence in the country’s stock markets has yet to fully recover, with setbacks faced by several major investment funds due to unsuccessful ventures in real estate. With limited superior alternatives available, funds have been diverted towards Chinese gold, and many young individuals have turned to investing in small quantities of gold.
Despite Beijing’s gold acquisitions, it constitutes around 4.6% of China’s foreign exchange reserves. In contrast, India holds nearly twice as much gold in percentage terms, as per the NYT report. Speculators in Shanghai markets have been closely observing the strong retail demand from Chinese consumers and steady central bank purchases, betting on its continuation. Notably, the average trading volume for gold on the Shanghai Futures Exchange surged by more than double in April compared to the previous year.
The demand for gold is expected to remain robust in China, as consumers seek a safe haven amid economic uncertainties. Additionally, the central bank’s ongoing gold accumulation and the shift in investor preferences suggest that China’s influence on global gold prices will continue.
