How China's Central Bank Gold Buying Frenzy Drove Prices To Record Highs, Attracting Gen Z To 'Gold Beans'

BY Benzinga | ECONOMIC | 05/06/24 01:14 PM EDT

China aggressively increased its gold acquisitions, driving the global price of the metal to its highest levels ever in April 2024, according to data recently released by the World Gold Council.

China’s gold reserves now represent 4.6% of its total financial reserves, a substantial increase from 3.2% since October 2022. This strategic accumulation has positioned China as the holder of the sixth-largest gold stockpile worldwide.

Last month, gold prices surged to as high as $2,431 per troy and ounce, pushing year-to-date gains in double digits. Gold prices as tracked by the SPDR Gold Trust outperformed other major asset classes such as major equity indices such as the S&P 500, as gauged by the SPDR S&P 500 ETF Trust (SPY) .

Chart: Gold Vs. S&P 500 ? Year-to-Date Performance

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Cultural And Economic Drivers of Chinese Gold Demand
The surge in China's gold acquisitions is deeply rooted in the cultural and economic landscape of the country. Gold is increasingly viewed as a symbol of prudent financial planning and good fortune in China.

The Chinese market, the largest single gold market globally, strongly believes in gold as a safe and appreciating asset, especially during times of economic instability.

According to the World Gold Council, gold’s popularity has been significantly bolstered by the demand for items commemorating the auspicious Year of the Dragon, and the ongoing preference for gold jewelry as a method of wealth preservation in the face of weaker currency and stock markets.

Chinese Central Bank’s Role In Gold Demand
The People’s Bank of China (PBoC) has played a pivotal role in this trend, adding 27 tonnes to its reserves in just the first quarter of the year. The addition occurred in March and marked a 17-month streak of consecutive purchases by the central bank, bringing its total gold holdings to 2,262 tonnes ? an impressive 16% increase in just five months.

“Bar and coin demand is set to remain strong. China is largely responsible, having started the year with the strongest quarter since 2017,” according to the World Gold Council.

The increase in the People’s Bank of China’s gold reserves has been achieved by reducing its U.S. dollar holdings, with China enhancing its gold stockpile through the proceeds obtained from selling foreign currencies.

Young Investors Step Into Gold Investment
Young Chinese investors are diversifying their gold investment strategies.

Platforms like Alibaba (BABA) Group Holding’s Taobao are becoming increasingly popular for buying gold in smaller quantities, like “gold beans.” These small-scale investments, often just a gram per unit, along with other forms of gold jewelry, are becoming a preferred secure investment option among young people during uncertain economic times.

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Photo: maoyunping via Shutterstock

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