China Is Buying Gold Like There’s No Tomorrow (2024)
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The global price of gold has reached its highest levels as Chinese investors and consumers, wary of real estate and stocks, buy the metal at a record pace.
As gold surged this year to its highest price ever, Xena Lin joined the frenzy by making monthly purchases of gold “beans,” pebble-like morsels of the precious metal.
For Ms. Lin, a 25-year-old administrative worker in southern China, the $80 beans — small enough to rest on a fingertip and weighing about one-thirtieth of an ounce — were an affordable way to buy into the gold excitement without splurging for jewelry, gold bars or coins. She had dabbled with investing in stocks in the past, but she said buying gold, especially in this fun way, inspired her to continue investing.
“I’m still working hard to save more,” Ms. Lin said.
Often considered a safe investment during times of geopolitical and economic turmoil, gold has soared in price in response to Russia’s invasion of Ukraine and the war in Gaza. But gold’s climb to highs above $2,400 per ounce has proved more resilient, and lasted longer, because of China.
Chinese consumers have flocked to gold as their confidence in traditional investments like real estate or stocks has faltered. At the same time, the country’s central bank has steadily added to its gold reserves, while whittling away at its holdings of U.S. debt. And throwing fuel on the fire are Chinese speculators betting that there is still room for appreciation.
Price of gold
China already held considerable sway in gold markets. But the country’s influence has become more pronounced during this latest bull run — a nearly 50 percent increase in the global price since late 2022. It continued to scale new heights despite factors that traditionally make gold a comparatively less appealing investment: higher interest rates and a strong U.S. dollar.
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Chinese consumers have flocked to gold as their confidence in investments like real estate or stocks has faltered. At the same time, the country's central bank has steadily added to its gold reserves
gold reserves
A gold reserve is the gold held by a national central bank, intended mainly as a guarantee to redeem promises to pay depositors, note holders (e.g. paper money), or trading peers, during the eras of the gold standard, and also as a store of value, or to support the value of the national currency.
While prices are heavily influenced by US interest rates, bullion's recent strength has in large part stemmed from robust consumption in China, where investment options are more limited than in other countries.
China's buying up a lot of gold, sending prices of the precious metal to record highs. The consumption trend reflects risk hedging and a lack of confidence in the flagging economy that has been struggling to regain momentum since lifting on-off pandemic lockdowns.
China's official gold holdings now stand at 2,264t, accounting for 4.9% of total foreign exchange reserves, the highest ever. So far in 2024, China has accumulated 29t of gold. And during the past 18 months holdings have increased by 316t or 16%.
Gold is a major financial asset for countries and central banks. It is also used by the banks as a way to hedge against loans made to their government and as an indicator of economic health. Some also see gold as a potential investment vehicle that can help diversify their portfolio.
U.S. leads the world's official bullion holdings, with 69.7% of reserves which is 8,133 tons as of February 2024. But in 2023, China outpaced all central banks, adding 225 tons of gold to its reserves.
The United States holds the world's largest stockpile of gold reserves by a considerable margin of over 8,100 tons. The U.S. government has almost as many reserves as Germany, Italy, and France combined. They are the next three largest gold-holding countries.
Chinese demand for gold is among the main causes behind the rise in the price of gold over the past few months. Analysts who follow the world economy often focus on the US and events in the Middle East, but the fact is that the Far East also greatly influences the market and the price of gold.
Gold is valuable due to its rarity, durability, and historical significance as a medium of exchange and store of value. It tends to hold its value during economic turbulence, and investors appreciate its potential for a safe haven. It is also used in jewelry and electronics, so there are some real-world uses of gold.
SINGAPORE, June 12 (Reuters) - Gold's lightning rally to successive record highs shows every sign of continuing in the second half of 2024 as the fundamental case for bullion remains firmly in place, though $3,000 per ounce looks just out of reach, traders and industry experts said.
China's purchasing spree is seen as a hedge against currency devaluation, especially as the yuan and the Chinese stock market face pressures from the country's economic challenges.
Among the resources being stockpiled is gold. Prices of the precious metal hit record highs in recent months as China's central bank diversified its holdings and consumers turned to the safe haven amid a flagging stock market and the country's strict capital controls.
Gold can serve as a hedge against inflation and is considered an alternative asset, other than cash, stocks or bonds, and often retains its value during times of political and economic uncertainty.
Central banks see gold as a long-term store of value and a safe haven during times of economic and international turmoil. Gold is considered a resilient investment. When interest rates fall, gold prices tend to rise, as bullion becomes more appealing than income-paying assets like bonds.
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