Gold is the bet of Chinese investors
Gold reserves have been increased to an all-time high by the country’s central bank. People in the nation are buying a lot of gold jewelry, partly due to their anxiety about the unstable economy. Investors are flocking to exchange-traded funds that follow the price of gold and purchasing shares of gold miners.
That has set the stage for the commodity’s recent upswing and will provide backing when the gold price ventures into unknown territory.
The demand in China is unlikely to be sufficient to drive up gold prices worldwide, in my opinion. Nikos Kavalis, managing director of precious-metals consulting business Metals Focus, said that whatever adjustment should be softened by the significant levels of physical demand that are being observed.
Following the Federal Reserve’s announcement that three interest rate cuts are likely for 2024, the price of gold soared to a new all-time high this week, trading above $2,200 per troy ounce. When interest rates fall, bond returns seem less appealing, which in turn causes the price of gold to rise.
However, investors often misjudge the Federal Reserve’s intentions when economic data is stronger than anticipated; therefore, uncertainty regarding the rate of cutbacks could put pressure on gold prices in the months ahead. Rate expectations are likely to fluctuate often due to the Fed’s delicate balancing act: While the economy is thriving, rising borrowing costs are putting a strain on individuals and small companies.
Tuesday, research firm BMI increased its gold price estimate to $1,950 to $2,250 per troy ounce. However, they cautioned that good economic data from the US posed a significant risk element, since it could delay rate reduction. American interest rates, the dollar’s strength, and international politics will be the primary factors influencing gold prices this year, according to the business.
Optimism was higher at State Street Global Advisors, the business that oversees the biggest spot-gold ETF on the planet. Once the Federal Reserve begins to cut rates later this year, the firm predicts that gold prices will hit $2,200 to $2,400.
A total of 225 metric tons of gold were purchased by the People’s Bank of China in 2018, surpassing all other worldwide central banks, as reported by the World Gold Council. The largest increase in China’s gold reserves since 1977 occurred during that period. According to market participants, the country’s pension funds, insurers, and other state-linked investors are also buying gold, but they don’t always announce it.
Authorities in China reported a 51% rise in the import of the precious metal for non-monetary purposes to 367 metric tons in the first half of this year compared to the same period last year.
During the Lunar New Year holiday, in China, sales of gold and jewelry products increased by 24% compared to the previous year. This period is known for its booming retail spending.Chinese exchange-traded funds that invest in gold and mining companies are doing very well. The China Gold Association reports that in January, the country’s gold ETF assets reached $4 billion, a new record. One of China’s leading gold and mineral miners, Zijin Mining, had record-high share prices on March 15.
The widespread belief that gold is a safe haven is driving demand in China. Chinese investors are looking for other ways to invest their money due to the prolonged real estate crisis, a lackluster stock market, and a fragile economy.The offshore yuan fell to its lowest point versus the dollar so far this year on Friday.
There are problems in China’s real estate market. Stock prices fluctuate wildly. Money supply is low. According to John Reade, chief market strategist at the World Gold Council, all of these factors are pushing Chinese investors toward gold as a diversification asset.
