Is China Driving the Gold Market Today?

The latter half of the 20th century was dominated by the Cold War, the rivalry between the United States and the Soviet Union. While the USSR’s collapse brought about a feeling in the United States that we now lived in a unipolar world in which the United States would dominate, nature abhors a vacuum.

While it may be too early to speak of a new Cold War, there’s a growing possibility that the next major power conflict could be between the US and China, with Western allies supporting the US and BRICS countries like Russia and India supporting China. China’s economic power has certainly seemed to be growing in recent years.

When the USSR collapsed, it was finally exposed for the paper tiger it truly was. But while there are legitimate reasons to question some measures of Chinese economic performance, there is no doubt that China is far more formidable an economic superpower than the Soviet Union ever was.

Events in China are playing an increasingly important role in the world, in all sorts of markets. And the gold market is no exception.

China’s increasing demand for gold is helping to drive the gold price ever higher. Here are a few things to consider when looking at Chinese gold demand.

Chinese Government Gold Demand

The Chinese government has purchased gold for 18 consecutive months, adding to its official gold reserves. Gold reserves now account for nearly 5% of Chinese official reserves, the highest level ever.

It’s important to note that these are just official figures. There are some who believe that China is actually understating the amount of its actual gold reserves, in an attempt to build up more gold than the West.

There is some speculation that part of China’s buildup of reserves is to eventually create a gold-backed currency, whether for domestic use or for international trade, that would end up becoming an official currency of the BRICS bloc.

With Russia also boosting its gold reserves and being a major producer of gold, India being a major buyer of gold, and South Africa being a major gold producer, it seems that any future BRICS currency arrangement could coalesce around gold.

There is widespread dissatisfaction around the the world with US sanctions policy and the weaponization of the US dollar and the US banking system that has resulted from that. The further other countries can distance themselves from reliance on the dollar and the US banking system, the further they can insulate themselves from the impacts of US sanctions.

Chinese Private Gold Demand

The Chinese government isn’t the only source of Chinese gold demand either. China has a growing middle class with an appetite for investments to grow and maintain their wealth.

Chinese citizens are increasing the amount of gold they’re buying too. While gold jewelry has traditionally been one source of gold demand, Chinese citizens are increasingly turning to other forms of gold investments.

Gold exchange-traded funds (ETFs), for instance, have become more popular in China recently, with Chinese gold ETFs seeing five straight months of increasing inflows. Gold demand on the Shanghai Gold Exchange is increasing too, and overall consumer demand in China seems to far exceed government purchases.

So much of our focus in the US is on US markets, the US economy, and US demand. But while US investors certainly play a large role in gold demand and subsequently movements in the gold price, Chinese investors are starting to play a large role as well.

Analysis of future gold price movements will increasingly have to take into account events in China with regard to their impact on the gold market. And Americans looking to buy gold will have to consider what’s going on in China too in order to gauge where world markets are heading.

Gold Demand Trends

Of course, China isn’t the only country in the world with strong demand for gold. Gold demand has also been traditionally strong in India, particularly through sales of gold jewelry during the Indian wedding season.

But what the rise of Chinese gold demand means is that the gold market worldwide is becoming increasingly multipolar. While a US recession would certainly impact gold demand and help drive gold prices higher on safe demand buying, a Chinese recession could do the same thing too.

That means that Americans looking to buy gold could one day wake up to find that the gold price has skyrocketed, not because of anything that has happened in this country, but because of something that happened in China. So that’s one more data point for potential gold buyers to take into account.

Gold demand has been strong in recent years, with continued safe haven buying helping to drive the gold price to new all-time highs over $2,400 an ounce. And there are many ways for would-be buyers to buy gold.

Direct cash purchases of gold are of course always popular. There’s something to be said for being able to buy gold and hold it in your hands.

Cash purchases of gold can be shipped directly to your door, and you have the option to store your gold at home, in a safe deposit box, or in a bullion depository. Being able to have physical access to their gold gives many people incredible peace of mind.

If you have assets in tax-advantaged accounts that you want to protect, such as in a 401(k), then a gold IRA is one option you might want to consider. Gold IRAs have all the same tax advantages as any other IRA, but own physical gold coins or gold bars rather than conventional financial assets like stocks and bonds.

You can fund a gold IRA with a tax-free rollover or transfer from a 401(k), 403(b), TSP, IRA, or similar retirement account. And when you choose to take a distribution, you can take it either in cash or in physical gold.

No matter how you decide to buy gold, Goldco can help. We’ve helped thousands of satisfied customers over the years benefit from owning gold.

With over $2.5 billion in precious metals placements and over 5,000 5-star reviews, we have worked hard to make Goldco one of the best and most trusted gold companies in the country. Call Goldco today to learn more about the many advantages of owning gold.