Gold Rush in China: Safe Haven in Uncertain Times

Amid turmoil in the local real estate and stock markets, Chinese investors and households have sought refuge in gold in droves. This precious metal, often considered a safe haven in uncertain times, saw a notable surge in demand from China, contributing to record prices.

Golden Bright Spot in China

The year 2023 marked China as the main market for gold jewellery and investment. This was highlighted in the quarterly report of the World Gold Council (WGC), which noted that demand for gold in China rose sharply following the disappointing performance of local real estate, equity and currency markets following the Covid-19 lockdowns.

The demand from China's central banks and the consumer sector was so intense that the Gold price was pushed to record highs, with the price remaining above $2,000 per troy ounce over the past year.

Investment Demand and Jewellery Consumption

China's investment demand for Gold bars, Gold Coins and exchange-traded funds, rose 28% to 280 tonnes, offsetting a significant decline in Europe. The consumption of gold jewellery also increased by 10% to 630 tonnes, while global demand remained stable.

Challenges for Chinese investors

The country's CSI 300 stock index fell by more than a fifth in the past year, and the value of new home sales among the largest developers fell 35% in December from the previous year. Chinese investors are faced with a dilemma as to where best to place their sizeable savings, built up during the pandemic. According to analysts, exposure to gold has become a necessity in Chinese portfolios, given the expected disinflation and income uncertainty.

Analysts at UBS have indicated that the role of Chinese demand in influencing gold prices is often underestimated. Although total demand for gold fell 5% to 4,448 tonnes last year, annual demand, including over-the-counter and stock flows, reached an all-time high of 4,899 tonnes.

Central Banks and Mysterious Buyers

Despite rising interest rates, which increased the attractiveness of bonds relative to non-yielding gold, demand for gold remained strong thanks to central bank purchases led by China, Poland and Singapore. However, more than half of these purchases were attributed to mysterious buyers, such as official financial institutions that concealed the true size of purchases.

A New Era for Gold

Gold seems to be entering a new era, decoupled from its traditional correlation with real interest rates. Demand is now mainly driven by central banks and the asset allocation of Chinese households. According to experts, increased demand in China, the world's number one consumer of gold, will continue, indicating a continued shiny future for this precious metal.