Gold frenzy up despite high prices

Consumption of gold, whose appeal had waned as Chinese consumers started favoring diamonds and other gemstones, has remained robust during the past few months in China, and its purchasing spree is expected to accelerate in the coming days, said industry experts.

Undeterred by high prices, Chinese buyers have shown strong demand for gold in the past few months, especially during the Spring Festival holiday season when buying gold jewelry is typically a tradition.

China's central bank added gold to its reserves for a 16th straight month in February. Bullion held by the People's Bank of China rose by about 390,000 troy ounces in February, taking total holdings to 72.58 million troy ounces, equivalent to about 2,257 metric tons.

Weakness in local assets, including equities and the property market, may continue to push investors to invest in physical gold, further boosting demand for the yellow metal, said Ray Jia, Research Head of China World Gold Council.

The industry's brisk replenishment reflects its positive outlook on gold demand, which mainly stems from positive sentiment toward gold jewelry consumption and strong investor demand for gold, Jia said.

The strong RMB gold price movement in recent months has attracted investors looking for safe-haven assets. This has led to the continued popularity of gold bars and coins, resulting in sustained replenishments by manufacturers and commercial banks during the Chinese New Year holiday, Jia said.

It has also contributed to a surge in local gold investment during 2023 and can continue to support the sector's growth, he said.

While gold prices in China in January lagged those of global stocks, it outperformed Chinese equities and commodities. This should remind local investors of the benefit of diversifying their portfolios with gold, he added.

Zhao Xiangbin, chief strategist at Beijing Gold and Forex Fortune Investment Management, said gold consumption in China is expected to remain in positive territory this year with strong year-on-year growth, as China's central bank and retail consumers alike have turned to the safe-haven asset.

While many investors in the West dumped gold holdings as rates soared last year, global demand was underpinned instead by massive purchases by central banks in emerging markets, led by China.

Consumers in China have been stocking up on coins, bars and jewelry despite high prices, fueled by an economic recovery and sustained buying by the central bank, he said.

Zhao said the tense geopolitical situation and uncertainty around the US elections later this year are likely to provide a solid foundation for gold output and consumption growth this year, further contributing to the "gold rush".

The yellow metal's off-take rose significantly in China last year, according to data released by the China Gold Association.

China has been a significant driver of gold's strength since 2022. The nation consumed 1,089.7 tons of gold last year, up 8.78 percent year-on-year, with consumption of gold jewelry expanding 7.97 percent year-on-year to 706.48 tons, while that of gold bars and coins surged 15.7 percent to 299.6 tons, it said.

Despite the recent surge in gold prices, China's per capita gold ownership still lags that of many developed countries, which indicates substantial room for growth in gold consumption among Chinese residents, said Zhao.

"Given the potential for further increases in gold prices, especially amid factors like inflation and geopolitical uncertainties, investments in gold for the long term might seem a wise idea, which in turn will also diversify the personal investment portfolio," he said.

"While gold prices may fluctuate in the short term, its scarcity and financial attributes make it a valuable asset, especially in the context of potential interest rate cuts by the US Federal Reserve and ongoing geopolitical tensions," said Zhao.

According to the China Gold Association, retail enterprises engaged in the processing and sale of gold jewelry in the country have been consistently introducing innovative designs in their products, with fashionable and lightweight gold jewelry gaining significant favor among consumers, contributing to the overall increase in gold jewelry consumption.

Young Chinese aged between 25 and 34 have become the main force of gold consumption, with their proportion at 59 percent in 2023. In the future, consumers under the age of 25 will become new major gold buyers, it said.

According to Beijing Caishikou Department Store, while the Spring Festival holiday has always been the peak season for gold sales, gold jewelry featuring the zodiac sign of the dragon has been especially popular this year despite rising prices.

Shandong Gold Group has also been injecting vitality into the gold industry, accelerating innovation in gold jewelry designs and techniques through exchanges and cooperation with universities, inheritors of intangible cultural heritages, and cultural and art institutions.

According to Wang Zhongwu, professor at the School of Philosophy and Social Development of Shandong University, while gold symbolized the taste of older generations, it is now a statement of Generation Z's identity that represents both personal style and cultural loyalty.

The introduction of various economic stimulus measures with a focus on consumption has contributed to the growth in purchases of gold jewelry, said Wang Lixin, CEO of the World Gold Council (China).

"China's gold industry has increased its investment in new technologies and capital in recent years, which will further boost gold output and consumption," Wang said.

The market anticipates positive consumer sentiment amid expectations that gold prices will reach new highs, Wang added.

Gold-backed exchange-traded funds in the Chinese market saw stable growth in 2023, with holdings of gold ETFs totaling about 61.47 tons by the end of 2023, up 10.04 tons, or 19.53 percent year-on-year, according to the China Gold Association.

In 2023, the People's Bank of China, the country's central bank, accumulated a total of 224.88 tons of gold, bringing China's gold reserves to 2,235.41 tons by the end of the year. It has consistently increased its gold holdings from November 2022 to December 2023, said the association.