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China’s Golden Rush: Investors Turn to Bullion Amid Market Instability

China is witnessing a surge in gold purchases as investors, households, and even central banks seek refuge in this traditional safe-haven asset. This trend emerges amid ongoing volatility in the country’s stock market and a crumbling property sector.

A recent World Gold Council (WGC) quarterly report revealed that China’s investment in gold bars and coins soared by 28% to 280 tonnes in 2023. Additionally, the country played a significant role in the global jewelry market, contributing to a 17% increase in gold demand.

While global demand for gold has seen a decline, dropping 5% to 4,448 tonnes in 2023, China is bucking this trend. Both private individuals and the government are actively acquiring the precious metal. The Chinese central banks’ continued gold-buying spree has propelled gold prices past the crucial $2,000 per ounce benchmark. The Shanghai Gold Exchange reported a 7% year-over-year rise in total withdrawals, amounting to 1,687 tonnes of gold in 2023. Moreover, Chinese gold ETFs experienced considerable inflows as investors sought stability amid a weakening currency and faltering assets.

A separate WGC report from January emphasized gold’s enhanced appeal, citing its performance amidst currency devaluation and the weakening of other Chinese assets.

This gravitation towards gold reflects the broader uncertainties surrounding China’s financial health. The Chinese stock market has been particularly turbulent, with the benchmark CSI 300 stock index declining by 5% in just a month and 23% over the past year. The real estate sector is struggling with ongoing crises like the Evergrande debt issue, compelling Beijing to intervene with remedial measures.

Post-COVID, the Chinese economy has shown signs of sluggishness, grappling with challenges like staving off deflation, stemming the outflow of foreign investments, and halting a stock market decline. By the end of 2023, foreign investors had withdrawn a staggering 90% of their investments in Chinese stocks. Even local investors, weary of the continuous market downturn, have started diverting funds into Japanese stocks.

For investors and market analysts, China’s growing affinity for gold is a clear indicator of the search for stability in uncertain financial times. This trend highlights the enduring allure of gold as a safe-haven asset, especially in economies facing turbulence in traditional investment sectors like stocks and real estate. As China navigates these challenging economic waters, the pivot towards gold investment offers insights into investor sentiment and strategies during periods of market instability.