Gold at All-Time High, China Buys Amid Economic Uncertainty, Bank of Korea Also ‘Buying’

 

Gold at All-Time High, China Buys Amid Economic Uncertainty, Bank of Korea Also ‘Buying’

 

As Chinese consumers shift their investments from traditional investments such as real estate and stocks to gold, and as the People’s Bank of China rapidly reduces its holdings of U.S. Treasuries by increasing its gold reserves for the 17th month in a row in response to Russian financial sanctions, the Bank of Korea is joining in, buying gold with dollars.

“Gold hit a record high this week,” the Associated Press reported on the new gold rush, “Spot gold closed above $2,514 on Tuesday, the highest closing price for the commodity to date, according to data from FactSet.”

AP previously reported on June 28 that “gold’s rise is increasingly driven by demand from individuals and central banks in Asia,” citing Michal Teklinski, an expert at Goldsaver, a popular new branch of investment gold dealer Goldenmark Group that allows customers to buy physical gold on installment, as saying, “The rise is increasingly driven by demand from individuals and central banks in Asia.”

The price of gold rose $620 per ounce this week on the international market compared to a year ago, with one gold bar now worth more than $1 million.

The Staunovo team at investment bank UBS released a report predicting that gold prices will reach $2,600 by the end of this year and $2,700 by mid-2025, and analyzed that the U.S. interest rate cut and the weak dollar will support the inflow of funds into gold ETFs (exchange-traded funds), thereby boosting investment demand. The New York Times, which focused on the People’s Bank of China’s gold purchases, reported on May 5 that “the People’s Bank of China increased its gold holdings for the 17th straight month through March, and the Bank of Korea bought more gold than any other central bank in the world last year, reaching its largest holding in nearly 50 years.” 

China is buying gold as a means for the central bank to diversify its reserves and reduce its dependence on the U.S. dollar, long considered the most important reserve currency.

China has been reducing its holdings of U.S. Treasuries for more than a decade, and as of March, China’s U.S. debt stood at about $775 billion, down from about $1.1 trillion in 2021. When China has increased its gold holdings in the past, it has bought gold domestically in yuan, said Guan Tao, global chief economist at BOC International in Beijing. But this time, the central bank is using foreign currency to buy gold, effectively reducing its exposure to the U.S. dollar and other currencies, he said.

On China's expansion of gold holdings amid a reduction in U.S. debt, the New York Times reported that "central banks in many countries began buying gold after the U.S. Treasury took the unusual step of freezing Russia's dollar holdings in response to sanctions imposed on Russia," adding that "other U.S. allies have imposed similar restrictions on their own currencies, and the Bank of Korea has also bought gold."

The governor of the People's Bank of China said that the US-led financial sanctions on Russia "have shaken the foundations of confidence in the current international monetary system and forced central banks to protect their foreign exchange reserves with a wider range of assets," adding that "we can see that this gold rally may be different from the past."

The New York Times reported on China's gold buying spree, saying that "gold accounts for only about 4.6% of China's foreign exchange reserves," and that "India has almost twice as much gold reserves as its gold reserves."

The recent surge in gold buying was fueled by Chinese investment fever.

The New York Times reported that "speculators in the Shanghai market expect this trend to continue as aggressive retail buying by Chinese consumers and central bank buying moves coincide," adding that "the average volume of gold trading on the Shanghai Futures Exchange in April more than doubled from a year ago."

The AP reported on the recent rise in gold, saying that "the “Interest often comes in times of uncertainty,” he said, adding that “concerns about inflation and potential strength of the U.S. dollar have led some to look for alternative places to store their money, and gold soared early in the COVID-19 pandemic.”