The irresistible charm of Chinese gold

Chinese Gold Buyers Breaking Tradition, Influencing Global Market

China’s tradition of buying gold during the Lunar New Year holiday is being disrupted this year, impacting the global gold market. Historically, gold has traded at a premium in China around these holidays, but this year, Chinese gold buyers are breaking from tradition.

Global gold prices have reached record highs, with bullion prices in London climbing over ten percent in the past couple of months. Despite this surge, there has been a significant outflow from gold exchange-traded funds backed by physical gold. The World Gold Council reports net outflows of over 113 tonnes in the first quarter, marking the eighth consecutive quarter of outflows.

The unique influence of China on the current gold rally is evident in the doubling of the average daily trading volume of related products on the Shanghai Gold Exchange in April. The spot price of gold in China is approximately $85 higher per troy ounce compared to London’s international benchmark, a premium that has persisted for almost a year.

This sustained demand is driven by groups viewing gold as a hedge against inflation, rising geopolitical risks, and speculation about a potential devaluation of the renminbi. Chinese buyers may also find reassurance in the central bank’s active purchases, as China’s central bank has been the largest buyer among its global peers, adding 225 tonnes to its gold reserves last year.

Despite current high prices, Chinese buyer enthusiasm is expected to continue supporting gold prices in the coming months. As global economic and geopolitical uncertainty increases, demand for safe-haven assets like gold is likely to grow.