Amid China’s current economic downturn, the Chinese people are flocking to buy gold since its value is more likely to remain stable over time, and even the Chinese regime increased its holdings by 30 percent last year. Gold prices have continued to rise since the end of last year given the increased demand.
On March 1, the gold futures price in New York was $2,092.15 per ounce, up 1.82 percent from the previous trading day.
On Dec. 4 last year, the price of gold hit a historical high after 40 months, reaching $2,152.
In 2023, both the People’s Bank of China (PBC), which is the central bank of China, and private purchases of gold in China increased by 30 percent compared to the previous year. Analysts believe that the escalating confrontation with the United States has prompted the Chinese Communist Party (CCP) to reduce its holdings of U.S. dollars and increase its holdings of gold as a backup plan. For the Chinese public, buying gold serves as a means of asset protection amid a downturn in real estate and the devaluation of the Chinese yuan.
Behind the Gold Buying Frenzy
China is the world’s largest consumer of gold, with a longstanding culture of buying and saving up the precious metal.Last year, the price of gold in China saw strong momentum. During this year’s Lunar New Year holiday period, a wave of “gold buying frenzy” swept throughout China, with people flooding into gold and jewelry shops, leading to overcrowded stores and overwhelmed staff. During the eight-day Lunar New Year holiday, the sales volume for gold increased by as much as 70 percent compared to the same period last year.
Data from the China Gold Association shows that gold consumption in China exceeded a thousand tons in 2023, an increase of 8.78 percent compared to the previous year. Among them, gold jewelry saw a 7.97 percent yearner year growth, while gold bullions and coins saw a 15.70 percent increase.
Frank Tian Xie, a professor at the University of South Carolina Aiken, spoke about this gold frenzy to The Epoch Times, saying that this trend in China is due to the Chinese people’s concerns about the future of the Chinese economy, the devaluation of the Chinese yuan, and the pressures of inflation. They are taking precautions against inflation and seeking to mitigate risks posed by potential disasters and wars.
“Nowadays, the Chinese people lack confidence in the CCP’s sovereign money, and there may be digital currency initiatives in the future, which are all very worrying,” he explained. “Buying gold in troubled times is a tradition that has been passed down through the ages for the Chinese.”
Mr. Xie believes that the purchasing power of private citizens may be limited since they are taking money out from the stock market and savings to buy gold. The CCP, on the other hand, is buying gold because they know that they have printed too much money and that the Chinese yuan is losing its value. So, in the end, this enthusiasm may not last very long.
According to the latest data released by the National Bureau of Statistics of China, in Jan. this year, the prices of commercial properties in 70 large and medium-sized cities continued to decline, with prices for new properties in large cities dropping by 0.5 percent year over year, and prices for secondhand properties dropping by 4.9 percent year over year. China’s property prices have been declining year over year for 22 consecutive months.
Major cities such as Beijing, Shanghai, and Shenzhen have lifted previous restrictions on property purchases, showing that the CCP’s tactics to stimulate property purchases have failed, leaving the real estate market in free fall.
Gold Price Forecasts and Predictions
In the past 24 years since the millennium, the price of gold has only fallen in five years, while it has risen in the remaining 19 years. The most significant increases occurred in 2019 and 2020, with rises of 18.83 percent and 24.43 percent, respectively. There were slight declines in 2021 and 2022, followed by a 7.34 percent increase in 2023, with an average price of $1,932.14 per ounce.Due to factors such as dwindling gold reserves, rising labor costs, increased mining costs, and the long-term decline in U.S. interest rates, the price of gold is expected to continue to remain high in the future.
On Dec. 13 last year, Federal Reserve Chairman Jerome Powell told the media after a meeting of the policy-making Federal Open Market Committee (FOMC) that members discussed cutting interest rates rather than another round of rate hikes. As the market anticipates a change in monetary policy by the Federal Reserve, long-term interest rates in the United States are expected to decline.
Japan’s Rakuten Securities Economic Research Institute pointed out that the decline in U.S. interest rates, which suppresses the rise in gold prices, makes it easier for funds to flow into the gold market, which has no interest.
According to UBS, by the end of this year, the price of gold may rise to $2,250 per ounce, and Goldman Sachs also predicts that it may rise to $2,175 within the year.
Currently, there are ongoing conflicts between Russia and Ukraine, Israel and Hamas, and potential conflicts in regions such as the South China Sea, East China Sea, and the Taiwan Strait. Such wars and sanctions against China imposed by the United States and Western allies led to various unstable factors and potential risks.
Some Japanese market analysts believe that if former U.S. President Donald Trump wins the election in November, his America First policy may further isolate China and may reduce military aid to Ukraine. Such policy changes may drive up the price of gold even further.
In addition, the fiscal problems in the United States are worsening, with the federal government’s public debt exceeding $33 trillion. For investors, the risk of downgrading U.S. credit ratings remains. The decline in the credibility of the U.S. dollar will prompt funds to flow into the gold market.
Mr. Xie also said: “The price of gold will slowly rise in the future. This is because worldwide demand is increasing, and the shadow of global conflict and war remains. If there is a sudden escalation in wars, it will lead to a rapid increase in the gold prices.”
