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China is buying gold like there's no tomorrow.

Date: 07-05-2024
Subject: China is buying gold like there's no tomorrow
As gold surged this year to its highest price ever, Xena Lin joined the frenzy by making monthly purchases of gold "beans," pebble-like morsels of the precious metal.

For Lin, a 25-year-old administrative worker in southern China, the $80 beans -- small enough to rest on a fingertip and weighing about one-thirtieth of an ounce -- were an affordable way to buy into the gold excitement without splurging for jewelry, gold bars or coins. She had dabbled with investing in stocks in the past, but she said buying gold, especially in this fun way, inspired her to continue investing.

Often considered a safe investment during times of geopolitical and economic turmoil, gold has soared in price in response to Russia's invasion of Ukraine and the war in the Gaza Strip. But gold's climb to highs above $2,400 per ounce has proved more resilient, and lasted longer, because of China.

Chinese consumers have flocked to gold as their confidence in traditional investments like real estate or stocks has faltered. At the same time, the country's central bank has steadily added to its gold reserves, while whittling away at its holdings of U.S. debt. And throwing fuel on the fire are Chinese speculators betting that there is still room for appreciation.

China already held considerable sway in gold markets. But the country's influence has become more pronounced during this latest bull run -- a nearly 50% increase in the global price since late 2022. It continued to scale new heights despite factors that traditionally make gold a comparatively less appealing investment: higher interest rates and a strong U.S. dollar.

Last month, gold prices vaulted higher even after the Federal Reserve signaled that it would keep higher interest rates for longer. And it has continued to appreciate even as the dollar has risen against almost every major currency in the world this year.

Prices have pulled back to around $2,300 per ounce, but there is a growing sentiment that the gold market is governed no longer by economic factors but by the whims of Chinese buyers and investors.

"China is unquestionably driving the price of gold," said Ross Norman, CEO of MetalsDaily.com, a precious-metals information platform based in London. "The flow of gold to China has gone from solid to an absolute torrent."

Gold consumption in the country rose 6% in the first quarter from a year earlier, according to the China Gold Association. It came on the heels of a 9% increase last year.

Gold investing became more alluring as traditional investments turned lackluster. China's real estate sector, the destination for most families' savings, remains in crisis. Investor confidence in the country's stock markets has not fully returned. A string of big investment funds aimed at the wealthy toppled after failed bets on real estate.

With few better alternatives, money flowed into Chinese funds that traded in gold, and many young people took to collecting beans in tiny quantities.

Online merchants are aggressively hawking gold beans. On Alibaba's Taobao, one of China's biggest e-commerce platforms, a merchant sold gold beans on a livestream -- a blend of the Home Shopping Network and Amazon. She said buying beans was "like shopping, but an investment."

The tiny beans came in five shapes, including one that resembled a peanut and another like a persimmon. Paying $87 per bean, a person could buy into the gold boom for the price of a hot pot meal, she said.

Kelly Zhong, a teacher in Beijing, started buying gold in 2020 at the outset of the pandemic. She has amassed more than 2 pounds of gold bars, but she has also invested in the metal through exchange-traded funds. She said she was inspired by an old saying: "Jade in prosperous times, gold in troubled times."

As she felt the world become more chaotic, Zhong added to her stockpile, betting that gold prices would only climb. She has stopped buying, but she is not ready to sell. She sees no reason to. The Chinese economy is still struggling, and neither real estate nor stocks seem like a sound investment.

"The money has to go somewhere," she said.

Although Beijing has been buying up gold, the metal accounts for only about 4.6% of China's foreign exchange reserves. In percentage terms, India holds nearly twice as much of its reserves in gold.

The combination of aggressive retail buying from Chinese consumers and central bank purchases has drawn the interest of speculators on markets in Shanghai who are betting that this trend will continue. Average trading volume for gold on the Shanghai Futures Exchange more than doubled in April from a year earlier.

"They are swimming with the tide," said Norman from MetalsDaily. "China is now dominating the gold market."

For Lin, buying gold beans is satisfying, she said, because it feels like frivolous shopping but she's actually investing her money in something she can touch. She said she would continue to buy more beans.

"The price of gold always goes up and down," she said. "But the increase is within the range that I can bear, so I think it's OK."

Source Name : Economic Times

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