Gold prices surged to record highs this year, driven by uncertainties surrounding geopolitical events such as Russia’s invasion of Ukraine and the war in Gaza. In China, where traditional investments like real estate and stocks have lost appeal, consumers flocked to gold for its perceived safety. The country’s central bank has also been steadily increasing its gold reserves while reducing its holdings of U.S. debt. Chinese speculators have added to the fervor, betting on further appreciation of gold, which has climbed by nearly 50 percent globally since late 2022, despite factors that typically make gold less attractive, such as higher interest rates and a strong U.S. dollar.
Chinese consumers have embraced various forms of investing in gold, such as purchasing “gold beans” in small quantities, which serve as an affordable entry point into gold investment. Online merchants in China aggressively market these beans on e-commerce platforms, likening the purchase to shopping while highlighting its investment potential. The appeal of gold investing has grown as traditional investment avenues including real estate and stocks faltered. With lackluster alternatives, Chinese funds dealing in gold have seen increased interest, with many young people taking up the trend of collecting gold beans.
Notable individual investors, like Kelly Zhong, a teacher from Beijing, have been stocking up on gold bars and investing in gold through exchange-traded funds. Seeing gold as a safe haven in troubled times, she believes that prices will continue to rise. Ms. Zhong attributes her continued investment in gold to the ongoing economic struggles in China, where real estate and stocks remain uncertain investments. The concept of diversifying one’s portfolio and securing investments in a turbulent economic environment resonates with many Chinese investors, leading to a steady flow of funds into gold.
The People’s Bank of China has been consistently increasing its gold reserves for over a year, making it the world’s largest buyer of gold among central banks last year. The bank’s gold-buying spree is in line with its strategy to diversify reserve funds and reduce reliance on the U.S. dollar. China has been decreasing its U.S. Treasury holdings for years, using foreign currencies to purchase gold instead. The move toward gold has been reinforced by international events, such as the freezing of Russia’s dollar holdings under sanctions, leading to a shift in central banks’ reserve strategies towards more diverse holdings.
The buying frenzy for gold in China has caught the attention of international market speculators, who are closely monitoring the market for potential continued growth. Trading volumes for gold on the Shanghai Futures Exchange have more than doubled from the previous year, indicating heightened interest in the precious metal among investors. The combination of aggressive retail buying from Chinese consumers and central bank purchases have solidified China’s dominance in the global gold market. Despite fluctuations in gold prices, individual investors like Xena Lin continue to see gold as a viable investment option, viewing the fluctuations as manageable within their investment tolerance. As China shapes the course of the gold market, the appeal of investing in gold remains strong among Chinese consumers and institutions alike.
