Gold prices have hit record highs due to strong demand from Chinese consumers and the central bank. Ni Lifang/VCG/Getty Images
Gold prices have reached record highs thanks to global uncertainties and expectations of interest rate cuts from central banks.
China’s consumers and the Chinese central bank are grabbing gold even as the falling yuan makes the metal more expensive.
Other central banks around the world are also buying gold to diversify their holdings.
This is a machine translation of an article from our US colleagues at Business Insider. It was automatically translated and checked by a real editor.
China’s economy is not doing well and the currency is tumbling. The turmoil is causing prices for gold, which is considered a safe haven, to skyrocket.
Gold spot prices have recently reached record highs thanks to global demand due to economic and geopolitical uncertainties. You can charge around over $2,400 per ounce (approximately 28.35 grams). The expectation of interest rate cuts by central banks also increases the attractiveness of gold. This is because the returns on fixed-interest investments such as bonds generally fall when interest rates fall. In China, consumers are grappling with an economy struggling to recover from a pandemic. Added to this is a weak yuan, which has fallen by around five percent against the US dollar in the last year.
This makes gold – which, like most internationally traded commodities on the world market, is denominated in US dollars – even more expensive for Chinese consumers. But consumers and China’s central bank can’t get enough gold. Even Gen Z investors in China are joining the trend. They buy tiny bottles of “golden beans,” like Bloomberg reported last month. They are looking for alternatives to the Chinese stock markets, which have gone into a tailspin in recent years.
The Chinese central bank has also bought gold. And in much larger quantities than the few grams of beans from Generation Z. The Chinese central bank (People’s Bank of China, PBOC) has been buying gold for 17 months in a row. The bank increased its holdings of the precious metal by 16 percent during this period. This emerges from a report by the international trade association World Gold Council. This spending spree coincides with a global trend. Central banks are diversifying their holdings to reduce their dependence on the US dollar. In 2023, China’s central bank purchased 225 tons of gold, according to the World Gold Council. Last month, China’s gold reserves rose by five tonnes, bringing the country’s total holdings to 2,262 tonnes.
China has overtaken India as the world’s largest gold buyer
With gold fans now flocking to China, the country has overtaken India as the world‘s largest buyer of the commodity. The two economies have been fighting for first place for years. However, China’s spending spree over the last year has left India behind. According to the World Gold Council, China’s demand for gold jewelry rose 10 percent to 630 tons last year. Meanwhile, India’s purchases fell six percent to 562 tonnes. US consumers were a distant third, purchasing just 136 tons of gold jewelry in 2023. This doesn’t just apply to China. World Gold Council data shows that other central banks, including Poland and Singapore, have also bought gold. This is intended to protect oneself against the uncertainties of the global economy.
India’s central bank bought 16.2 tonnes of gold last year. The USA has not increased its gold reserves. However, the USA already has the largest gold reserves in the world, with around 8,134 tons of the precious metal. That’s far more than second-place Germany, which has 3,352 tons of the raw material. Despite the gold rush, Georgette Boele, an economist at Dutch bank ABN AMRO, warned in an April 15 note against focusing entirely on the commodity given record prices. “The trend in gold prices is positive and the sky seems to be the limit. However, we remain cautious,” Boele wrote.
She pointed to an apparent paradox in the market: high U.S. interest rates would normally dampen gold prices. However, the opposite is the case here. “Even if these changes have occurred in the past, they are usually temporary in nature. This means they could last approximately three to six months,” Boele wrote. Current high gold prices do not mean there is a supply shortage, she wrote. “The scale of central bank purchases does not justify gold prices at current levels,” she wrote. Based on this assessment, it is sticking to its forecast of 2,000 US dollars (approx. 1,800 euros) per ounce of gold at the end of 2024, which is below the current rate of around 2,400 US dollars (approx. 2,200 euros).
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