China’s financial demographic touted for ramping gold prices to a record-high, investors grow wary of stocks and real estate and thereby sought value in gold
The huge pile of gold which China is backing comes aggressively from its household buyers. Splurging money on stocks and real estate has not fitted well with Chinese investors, who have decided to tie their trust in gold as a safer investment option. China’s jewelry purchases rose 8% while demand for gold coins and small bars jumped 15.7% in 2023, according to China Gold Association. Gold’s climb to highs above $2,400 per ounce is accredited to China’s ferocious buying.
Deeming economic volatility subsequent to higher interest rates and strong U.S. dollar has frightened global investors, distancing them from investing in traditional instruments like stocks or real estate, making gold comparatively more appealing. Last month, gold prices spiked higher even after Federal Reserve signaled constancy in higher interest rates.
Stocking up gold will enhance China’s financial credibility which will magnetize investors to continue their pursuit of investing in China. On one hand, countries are struggling to have their logistical need satisfied in response to Russia’s invasion of Ukraine and the war in Gaza, and on the other hand, China has singlehandedly ramped up gold price – a masterstroke to salvage itself from economic uncertainty.
China’s young towering gold prices by investing in “gold beans”
Gold investing became more alluring as traditional investments turned mundane. Chinese families’ most attractive, investment destination – real estate steeps in crisis whereas the stock market has not fully recovered from economic shock bolstered by pandemic. With few better alternatives, many people turned to collecting “beans” in tiny quantities. A tiny gold bean, resembling a peanut, came in five shapes, costing $87 per bean. The cost-friendly bean investment has skyrocketed Chinese consumption of gold.
Amassing tiny bean collection has immune Chinese households from economic diseases like inflation, interest rate hikes, and costly living. Gold consumption in the country rose 6% in the first quarter from a year into the pandemic. It came to further increase of 9% last year. Online merchants did not aloof themselves from taking advantage of this unique opportunity. Alibaba’s Taobao, China’s biggest e-commerce platform saw merchant sold gold beans on a livestream.
Aggressive household consumption of gold has drawn interest of investors on markets of Shanghai who are betting that this trend will continue. Average trading volume of gold on Shanghai Future Exchange in April more than doubled. This implication will appreciate consumer confidence in gold which means future price of gold is certain to grow.
People’s bank of China backing gold, leading to rising price
Another major buyer of gold in China is the country’s central bank. Last year People’s bank of China bought more gold than any other central bank in the world, adding to its reserve gold, more than what it has added in last 50 years. China is backing gold reserves to pay off its U.S holding of $1.1 trillion which is now reduced to $775 billion.
Currency experts deduce China’s strategy to go mad behind gold buying in order to reduce its exposure to U.S. dollar and other currencies. Increased gold holdings would strengthen China to buy its products domestically and save on dollar. After U.S Treasury Department took step to freeze Russia’s dollar holdings under sanctions imposed on Moscow, many central banks including China started acquiring gold. It shook normalcy of international monetary system and forced central banks to diversify there reserves with different forms of holdings.
Biggest mining companies in China have also witnessed an overall appreciation in their stock prices. The combination of aggressive buying of gold from Chinese consumers and central bank purchases has revamp confidence in gold excavations. Zijin Mining Group Co. Limited headquartered in mainland China, accounting for 20.53% of China’s total gold production. Shanghai and Hongkong Stock Exchange listed company engaged in prospecting, exploration, and mining of gold, copper in 11 countries has rejoiced over soaring gold consumption in the country. There are abundance of mining companies worldwide who are expecting high value to their stock prices, subsequent to Chinese aggressive buying.
