22. 4. 2024.

Chinese demand for gold is among the main causes behind the rise in the price of gold over the past few months. Analysts who follow the world economy often focus on the US and events in the Middle East, but the fact is that the Far East also greatly influences the market and the price of gold. 

The price of gold is currently at 2,214 euros per ounce, or $2,360 per ounce, and what role did Chinese investors play in that, read below. 

Is institutional demand behind the growth?

People's Bank of China it has been increasing its gold reserves for the 17th month in a row. Last month they acquired a little more than 5 tons of gold, which is not so significant compared to what is happening on the Shanghai Gold Exchange (SGE), which is more reflective of domestic demand. 

The Shanghai Gold Exchange recorded an increase in demand to as much as 522 tons in the first quarter of this year, that is, 124 tons or 12.3% more than the same period last year. It is the main channel through which gold enters private circulation in China. Although the increase is noticeable, it is not the main reason for the rise in the price of gold.

What could largely explain the rise in gold demand and price is the Shanghai Futures Exchange (SHFE). The daily turnover of gold on the Shanghai Futures Exchange last year was approx $ 13.9 billion per day, while in the third month of this year that number almost doubled, and now it has tripled to over 40 billion dollars per day. At the moment, the turnover is practically half the size of that of the London Stock Exchange LBMA.

Demand among the general population

Futures on the SHFE are dealt with by speculators and hedgers, however, what passes through the SGE, i.e. the 522 tons that were mentioned, feeds the ever-increasing demand of the population for gold coins and gold bars.

Traditional customers are older people whose demand has always remained relatively high. In China, gold is traditionally given as a gift for special occasions, but its popularity as a form of savings and long-term investment is growing, especially among young people.

Older people are increasingly being joined by members of younger generations, the so-called millennials and generation Z (generations born after 1980 or after the mid-90s). 

Is the center of gravity shifting to the east?

What distinguishes Chinese investors, both large and small, from Western types of investors is the high level of networking. Analysts they talk about WeChat groups with millions of users that can easily make waves in the markets. A similar phenomenon that we are witnessing now, to a lesser extent, also happened in 2019.

Does all this mean that the center of gravity of the world gold market is shifting to the east, towards China? By all accounts, there could be a certain balance because the American and European markets are still large, but it seems that the price will no longer be exclusively determined only in London and the New York Stock Exchange.

What does the future hold?

It is very likely that the world is moving more and more in the direction of monetary multipolarization, that is, a process that includes de-dollarization and the reduction of the influence of Western powers led by the USA when it comes to the economy. The US still represents the world's leading monetary power, and its dollar the backbone of the global monetary system, but changes are on the horizon.

Therefore, China will play an increasingly important role, not only on the economic, but also on the geopolitical level. In this context, large purchases of gold represent only one of the mechanisms that the Chinese use to realize their long-term plans.

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The texts on centarzlata.com serve exclusively to inform and educate about financial and precious metal markets and should not be considered as investment advice.