Understanding China’s Impact on Global Gold Markets
There has been a lot in the media recently about the impact of China’s appetite for gold on the recent spike in gold prices, including this one in the New York Times and this one in the Sydney Morning Herald.
Luke Collins, Rush Advisor and Head of Commodity Sales Australia, ANZ Bank, gives his response on what is really behind the recent bull run on gold:
Gold demand growth over recent years has been driven predominantly by macroeconomic factors, including central bank policy, gold as an asset class (gold is non-yielding but competes against equities and bond investments in portfolios), gold as a safe-haven asset during times of instability and uncertainty, and US Trade Policy, which has the potential to increase geopolitical risk – especially under a Trump re-election.
More recently a combination of the commencement of the Hamas-Israel conflict (which saw strong safe-haven demand for gold), falling US Treasury yields and a weakening US dollar (as markets priced in the completion of the US monetary tightening cycle and commencement of monetary easing) has added to gold’s price momentum.
Central bank buying in 2024 has been at record levels, with purchases dominated by emerging market central banks eager to lift their gold reserves. China topped up its gold reserves for an 18th straight month, although the pace of buying slowed. In April it bought 60koz, down from 160koz in March and 390koz in February. However, first quarter purchased by the world’s central banks were the strongest on record.
Looking ahead, world consumption of gold is expected to stabilise (but remain relatively high) below recent elevated levels. With limited ability for either primary (via the worlds gold miners) or secondary (any central bank and jewellery sales) sources to meaningfully increase supply, we expect price support to remain strong underpinned by ongoing central bank purchasing, economic uncertainty and geopolitical risks.
Read more about our outlook for Gold in 2024 here.
