Chinese consumers are increasing their appetite for gold, seeking to protect their assets amid a volatile stock market, a depreciating yuan and property doldrums, which analysts said would continue to boost international gold prices coupled with geopolitical uncertainties.
Consumers in China bought 308.9 tonnes (10.9 million ounces) of gold in the first quarter, representing a 5.9 per cent increase compared with the same period in 2023, according to data released by the China Gold Association on Friday.
Purchases of gold bars and coins, which largely reflect investment and hedging demand, surged by 26.8 per cent year on year to 106.3 tonnes, while gold jewellery sales declined by 3 per cent from a year earlier to 183.9 tonnes.
But China’s domestic gold production rose by 21.2 per cent to only 139.184 tonnes in the first three months of the year, with 53.2 tonnes produced with imported ores or materials, indicating an overreliance on overseas suppliers.
The Chinese central bank will also continue to purchase more gold to prepare for more geopolitical turmoil ahead
“Gold represents the only safe asset for [Chinese consumers] to protect their wealth against domestic inflation, asset price declines as well as against geopolitical risks,” said Chen Zhiwu, the chair professor of finance at the University of Hong Kong.
“I expect Chinese household demand for gold to rise more in the future. And the Chinese central bank will also continue to purchase more gold to prepare for more geopolitical turmoil ahead.”
As of Friday, the benchmark London gold price had reached US$2,337.6 per ounce, marking a 13.5 per cent increase since the beginning of the year, and about a 54.1 per cent increase from the start of 2020.
“The escalation in gold holdings by global central banks, coupled with heightened gold demand in the Chinese market, has emerged as significant drivers propelling recent gold prices beyond market expectations,” the Bank of China said on Friday.
China’s central bank bought 160,000 ounces of gold bullion in March, marking its 17th consecutive monthly purchase and bringing its total reserves to 2,262 tonnes (72.74 million ounces), as it aims to diversify holdings away from US bonds amid strained bilateral relations.
Over the past two years, China’s stock market had continued to oscillate at a low level, coupled with declining interest rates and reduced returns on wealth management products.
The instability has heightened the appeal of gold, especially as more countries pivot away from US dollar assets amid geopolitical tensions and the weaponisation of currency, leading to an increase in gold holdings, the Bank of China report added.
The China story is one of the reasons supporting gold prices, but the global risk-off sentiment is also fuelling the demand
“In the future, gold prices are expected to sustain their robust upwards trajectory, driven by ongoing global central bank efforts to de-dollarise, escalating geopolitical uncertainty, and shifts in the [US] Federal Reserve’s monetary policy,” the report said.
China eclipsed India as the largest purchaser of gold jewellery in 2023, with consumption totalling 630 tonnes last year, representing an annual increase of 10 per cent.
“The China story is one of the reasons supporting gold prices, but the global risk-off sentiment is also fuelling the demand,” said Gary Ng, senior economist at Natixis Corporate and Investment Bank, who expected China’s demand for gold to remain resilient in 2024.
“Beyond China, whether the US can take inflation is another determinant for future gold prices, which is probably the biggest uncertainty.”
