Why is China on a gold-buying spree? How is it affecting prices of the yellow metal?
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Gold remained over Rs 72,000 per 10 grammes on Monday after hitting a record high of 73,958 rupees per 10 grammes in April. Experts say domestic consumption in China, spurred by shaken confidence in real estate and the stock market after a series of scandals, has spiked the price of gold. The People's Bank of China (PBC) is also bulking up its reserves and unloading its US debt
read more Gold prices have increased around 13 per cent in 2024 - after rising more than 10 per cent in 2023. Representational image. Gold is going up, up, up.per The yellow metal is living up to its reputation of being considered a safe asset in turbulent times. The price of gold remained over Rs 72,000 per 10 gram on Monday. In the international markets, spot gold is trading at 2,315 per ounce. The precious metal in April hit a record high of 73,958 rupees per 10 grammes. Gold prices have increased around 13 per cent in 2024 - this after rising more than 10 per cent in 2023. But what is driving this surge? Let's take a closer look: Young buyers flock to gold The increase in gold prices is being driven by domestic consumption in China. The New York Time__s quoted China Gold Association as saying that gold buying in the country has risen six per cent in the first quarter of 2024 compared to the same period a year earlier. In 2023, gold buying rose nine per cent. China's demand for gold jewelry spiked 10 per, cent while investments in Chinese bar and coins nearly tripled that. China is now both the world's biggest producer of gold as well as its largest consumer. "From the start of the year, we've seen enormous Chinese retail buying … record amounts of buying on the domestic Shanghai Gold Exchange," John Reade, chief market strategist at the World Gold Council, told Bloomberg TV. According to The Economist, middle-aged women used to make up the bulk of gold buyers in China. But now many customers are in their 20s. Since most do not have the money to buy gold by the bar, they are buying it by the bean - around one gram. ""The clitter-clatter fills me with a sense of accomplishment," one person on social media wrote. "I can save beans until I retire." "You feel like you're spending money without spending money," another added. They are turning to the precious metal in an attempt to maximise their savings. This, as the country's confidence in real estate and stocks has been rocked by scandals. Philip Klapwijk, managing director of Hong Kong-based consultant Precious Metals Insights Ltd, told Fortune young people don't really have much of a choice. "The weight of money available under these circumstances for an asset like gold - and actually for new buyers to come in - is pretty considerable," Klapwijk said. "There isn't much alternative in China. With exchange controls and capital controls, you can't just look at other markets to put your money into." Central bank bulks up China's central bank is also bulking up its gold reserves. In 2023, the People's Bank of China (PBC) purchased more gold than any other central bank in the world. Of the 1,037 tons purchased by central banks, the PBC picked up around a quarter - around 225 tons. The central bank increased its gold reserves more than it had in nearly five decades. According to the World Gold Council, the PBC has increased its gold reserves for 17 months straight. Krishan Gopaul, senior analyst, Europe, Middle East, and Africa (EMEA), World Gold Council, noted that the PBC added 22 tons to its gold reserves in January and February. Global central bank #gold reserves rose by 19 tonnes in Feb, the 9th consecutive month of growth but at a slower rate than Jan. Y-t-d, central banks report adding a net 64 tonnes. Read more on this on Goldhub: https://t.co/xpVPwTBLsJ pic.twitter.com/SmrUclmvBG "China is unquestionably driving the price of gold," said Ross Norman, CEO, MetalsDaily, told The New York Times. The Telegraph quoted data from the World Gold Council as showing that the PBC has 2,262 tonnes of gold in its reserves. Since October 2022, the share of gold in its reserves have spiked to 4.6 per cent from 3.2 per cent. Experts say China's central bank looking to diversify as its slowly unloads US debt. This, as Beijing slowly unloads its US debt. According to DW, China is concerned about its overreliance on the US dollar. Chinese reserves have fallen to around $800 billion - a third of its holdings since 2011. They also say Beijing could be looking to stymie any Western sanctions over a possible invasion of Taiwan. Jonathan Eyal, associate director at the Royal United Services Institute (RUSI), told the newspaper: "The relentless purchases and the sheer quantity are clear signs that this is a political project which is prioritised by the leadership in Beijing because of what they see is a looming confrontation with the United States. "Of course it's connected also to plans for a military invasion of Taiwan." "The sanctions placed upon the Central Bank of Russia following the Russian invasion of Ukraine back in 2022 made politicians and reserve managers realise that they are more at risk than perhaps they thought they were," Reade told The Guardian. "If you offend the Western powers, then you can lose access to your foreign exchange reserves." What happens next? Experts say there could be a correction - at least in the short-term. "Though prices are coming down, demand is not improving. Buyers have taken a pause. They think prices could fall sharply, considering the big price rally of the last two months," said Ashok Jain, proprietor of Mumbai-based gold wholesaler Chenaji Narsinghji. Indian dealers charged a premium of up to $1 an ounce over official domestic prices - inclusive of 15 per cent import and three per cent sales levies, versus last week's premium of $5. Akshaya Tritiya, the second-biggest gold-buying festival after Dhanteras, is set to be celebrated this week. "If prices remain at this level or correct further, we could see good demand during the festival," said a Mumbai-based bullion dealer with a private bank. In China, dealers charged premiums of $18-$20 per ounce over benchmark prices , down from the $20-$35 premiums seen last week. Chinese markets are closed for the Labour Day holiday from May 1-3, but there was no boost from pre-holiday spending and consumption volume declined due to a short trading week, said Bernard Sin, regional director, Greater China, at MKS PAMP. With inputs from agencies