Chinese Gold Frenzy

Gold has been rising and forming another bullish pattern on the charts. Could widespread buying in China be a major factor, and is Australia in the same boat?

Chinese investors have been showing a strong appetite for gold, which has been spread across different sectors of the market:

• China's central bank has aggressively increased its gold reserves to record levels.
• Consumers have been flocking to gold jewellery amid concerns over the country's economic stability.
• Investors are also directing funds towards gold miners' stocks.
• Exchange-traded funds linked to gold prices have also received increased flow.

The significant rise in gold demand has been a key factor in the recent rally in gold prices and is expected to provide ongoing support as gold continues to reach new highs.

The price of gold reached a historic peak recently in USD and AUD measurements. The major catalyst was hints from the Federal Reserve of potential interest rate cuts in 2024. Traditionally, gold prices rise in response to declining interest rates and bond yields becoming less appealing.

China's bullish moves in the gold market have been easy to notice in its significant purchases of the precious metal. According to the World Gold Council, the People's Bank of China acquired the largest quantity of gold among global central banks in 2023. This makes it the most substantial increase in reserves since 1977. Chinese institutional investors, including pension funds and insurers, have also been discreetly increasing their gold holdings.

Chinese demand extends beyond central banks and investment firms. Imports for nonmonetary use surging by 51% in the first two months of this year compared to the same period last year. Sales of gold and jewellery products during the Lunar New Year period recorded nearly a 25% increase.

Uncertainties still remain regarding the Fed's rate-cutting strategy. It looks like investors are shifting towards the inevitability of eventual rate cuts rather than trying to pinpoint the exact timing. Switzerland's recent rate cut also helped fan the flames, since one central bank cutting could be a sign that others are not far behind. One potential slowdown for gold could come on the back of strong economic data announcements. However, after interest rates being held at record-highs and a US election coming up, will it be left to chance?

The attraction to gold as a safe haven has been driving Chinese investors amid challenges in other forms of investment. Chinese citizens have had to deal with the detriment of a weak currency, problems in the real estate market, and a weak stock market despite the government's best efforts. Which other countries are in a similar boat?