China Gold Demand Continues to Soar and Won’t Stop for the Forseeable Future

In a recent announcement by the World Gold Council, China's appetite for gold is expected to remain strong throughout the remainder of 2023.This comes as domestic prices for the safe-haven surged to a record high due to heightened investment demand, the strongest seen in over two years.

"The fragility of the domestic economic recovery, along with intensifying global geopolitical risk, could continue to support Chinese investors' safe-haven demand for gold."

The demand for gold bars and coins in China increased by 16% year-on-year during the third quarter, and the council anticipates that this demand will continue to be robust in the final quarter of the year. Several factors are contributing to this trend, including economic and political uncertainties, currency volatility, and central banks stockpiling gold.

The allure of gold in China may see further enhancement if the People's Bank of China continues its gold reserves accumulation, which has already been one of its longest buying streaks. However, the report also mentioned that a slightly later-than-usual Lunar New Year in 2024 could delay some of the demand until the first quarter of the following year.

To no surprise, the benchmark contract of the Shanghai Gold Exchange reached its all-time high, on track for nearly a 7% gain in October. And globally, gold prices have surpassed $2,000 per ounce for the time since May.

The World Gold Council further commented, "Gold demand has been resilient throughout this year, performing well despite the challenges posed by high interest rates and a strong US dollar. Looking ahead, with geopolitical tensions on the rise and expectations for continued strong central bank buying, gold demand may exceed expectations."

China's interest in gold, as discussed last week, has been partially fueled by an uneven and uncertain economic recovery, which has made other assets such as property and stocks less appealing, as well as an interest in improving its geopolitical position relative to the United States.

According to a recent report from Vladimir Zernov, market analyst at FX Empire, the continued string of funds China has used to purchase Gold has come from the consistent selling of large quantities of its US assets.

“There are two main theories about the reasons of China’s rapid selling of U.S. assets,” he said. Firstly, China needs to support the yuan. “The country’s currency settled near multi-year lows against the U.S. dollar as investors focused on the problems of China’s economy,” he wrote. “Selling dollar-denominated assets to provide support to yuan makes perfect sense.”

"The second reason, Zernov suggested, is that China’s activity could be due to geopolitical tensions between the U.S. and China, which are getting worse day by day. If China is trying to shift some money away from the U.S.-controlled financial system, it does not have too many options,” he wrote.