A surge of investments from Chinese speculators has played a pivotal role in fueling gold’s remarkable rally. Traders on the Shanghai Futures Exchange (SHFE) have significantly ramped up bullion purchases, outpacing their Western counterparts. Simultaneously, the People’s Bank of China (PBOC) posted one of its strongest performances in the first half of 2024, maintaining robust demand throughout Q1 and Q2. Coupled with rising retail jewelry demand, this creates a trifecta of forces driving China’s gold holdings higher, amplifying the nation’s influence on global gold prices.
Chinese Investors Go Long for Gold
The SHFE’s future traders nearly upped their gold long positions by 50%, reflecting growing bullish sentiment among investors. More than 293,233 contracts were set which represents 295 tons of gold. Earlier this year, long gold contracts extended to a record of 324,857, the highest point in nearly a decade. A single trading platform accounted for 50 tons, roughly equivalent to 2% of the central bank’s overall gold reserves.
“Chinese speculators have really grabbed gold by the throat,” says The World Gold Council’s (WGC) chief market strategist John Reade. According to analysts, investors have been motivated to diversify their portfolios amid a stock market slump and a looming housing crisis.
Central Bank Gold Binge
Chinese investors might be ramping up their gold consumption, but the PBOC has been the country’s primary source of demand. Over the past 20 years, China has more than tripled its physical bullion, outpacing US buying — which has been virtually nonexistent — by more than 300%. Currently, the central bank sits in the world’s 6th largest stockpile.
Emerging Markets Take Charge
China’s booming gold demand is part of a larger trend as emerging markets become more dominant players in the bullion market. In the past, wealthier Western nations — namely the US and Europe — were the most influential buyers. Over the past few decades, emerging economies such as the BRICS nations have exerted more influence and control with disproportionately higher gold demand. For example, the US simply maintained its gold reserves over the past two decades while China and Russia ramped up their holdings by 393.2% and 443.2%, respectively.
WGC’s John Reade continues, “[W]e are getting to the stage where speculative money in emerging markets can exert pricing power.” This dive into gold mirrors global de-dollarization efforts as countries, mainly developing economies, seek to shake USD influence. Todd Graf, precious metals advisor at Scottsdale Bullion & Coin reports “There’s a huge shift going on. Countries are moving away from the US dollar [in favor of] gold,” highlighting this transition.
American Investors Lag Behind
As Asian investors spearhead retail demand, American investors remain more cautious. This could be attributed to the dollar’s relatively strong performance in early 2024 along with the stock market’s record gains. However, analysts are in broad agreement regarding gold’s future growth. In fact, Goldman Sachs recently told investors to go for gold. This sentiment was shared by Bank of America, recommending them to buy gold like central banks.
Where do gold prices go from here?
Gold’s sitting near peak levels following a sustained rally that’s lasted more than a year. This leaves many investors wondering where gold is headed next. Experts are actually increasing their gold price predictions for the next few years. WGC expects central bank gold demand to flourish through 2025 and beyond. For its part, China has implemented gold buying quotas which suggests their gold binge is becoming official policy, echoing the suggestion of major financial institutions.
