Why Do China Stacks Up Gold Like There Is No Tomorrow? (image@Pixabay)Gold, which is often considered a safe investment during the times of geopolitical and economic crisis, has skyrocketed in price in recent days. One reason for the soaring prices can be attributed to Russia’s Ukraine invasion and Israel-Palestine war. However, experts say that the record highs in gold price to over $2,400 per ounce and its resilience in coming down can be attributed to the metal’s demand in China.
Chinese consumers are flocking to stack up gold as their confidence in investments like real estate or stocks started to went down. At the same time, the country’s central bank has steadily increased its gold reserves, while cutting away at its holdings of the US debt. It is to note that, as of March, China had about $775 billion worth of US debt, which is very much lower than the $1.1 trillion in 2021.
Beijing already held a considerable sway in the gold market. However, the country’s influence has become more pronounced to nearly 50 percent increase in the global price since 2022. The price continue to go up despite factors that usually made the gold appear a less appealing choice of investment, which is higher interest rates and a strong US dollar.
Even when the US Federal Reserve indicated that it is going to keep the higher interest rate for longer last year, the gold price refused to come down, and climbed up instead. It has continued to appreciate even though the dollar has risen against almost every major currency of the world this year.
Though prices pulled back to $2,300 per ounce, there is is growing sentiment that the gold market is governed by the whims of Chinese buyers and investors and no longer through the economic factors. Ross Norman, the CEO of MetalsDaily, a precious-metal information platform based in London said that, “China is unquestionably driving the price of gold”.
The Gold consumption in the country rose to 6 percent during the first quarter from a year earlier, according to China Gold Association. The rate came to nearly 9 percent rise last year.
The investment in gold has become more attractive as traditional investment like real estate appears to be in crisis. With only a few better alternatives, the Chinese money flowed into funds that are traded in gold. Chinese youth are collecting the gold in tiny quantities as an affordable investment.
Apart from the youth, another biggest buyer of gold in China is the country’s central bank. In March alone, the People’s Bank of China added to its gold reserves for a 17th straight month. The bank has bought more gold in last month than in any other central bank, and added more to its reserves than it had in nearly 50 years.
Reportedly, China is stacking up gold to diversify its reserve funds and reduce its dependence on the US Dollar. China has been cutting down its US treasury holdings for more than a decade.