China’s Gold Rush Continues: Central Bank and Consumer Demand Fuel Market Momentum
The global gold market is experiencing sustained vitality thanks to China’s renewed appetite for the precious metal, continuing a pattern established in early 2023. Recent market movements show gold prices hovering near six-week highs, with spot futures reaching $2,647.80 per ounce—a 0.44% daily increase—following the People’s Bank of China’s (PBoC) latest gold acquisition announcement.
December 2023 saw the PBoC add another 10 tonnes to its reserves, marking two consecutive months of purchases after a half-year pause. According to World Gold Council Senior Analyst Krishan Gopaul, China’s central bank has already expanded its gold holdings by 44 tonnes in 2024, bringing its total reserves to an impressive 2,280 tonnes.
This systematic accumulation by China’s central bank has proven instrumental in driving gold to successive record highs throughout 2024. What makes this trend particularly noteworthy is the parallel surge in Chinese consumer demand, which has effectively counterbalanced the diminished interest from Western investors.
Commerzbank’s Precious Metals Analyst Carsten Fritsch highlights a significant shift in market dynamics, noting that gold ETFs have ceded their market influence to central bank purchases over the past three years. This transformation reflects a broader change in how gold prices are determined in today’s market.
The PBoC’s gold-buying strategy aligns with China’s larger economic objectives, particularly its efforts to reduce dependence on the U.S. dollar and enhance the yuan’s global standing. However, despite recent acquisitions, gold’s share in China’s foreign reserves remains relatively modest at approximately 5%—considerably lower than other major central banks. For comparison, India’s central bank maintains 9.3% of its reserves in gold, while the Bank of England and European Central Bank hold even higher proportions.
Capital Economics’ Assistant Climate and Commodities Economist Hamad Hussain suggests this disparity indicates significant room for growth in China’s gold holdings. With foreign reserves totaling roughly $3 trillion, China appears positioned to continue its gold accumulation strategy.
The long-term implications of China’s gold purchases are substantial, according to George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors. In his analysis shared with Kitco News, he emphasizes that central bank demand, with China leading the charge, currently represents 15% of total end-user demand. More significantly, Milling-Stanley projects this trend could extend over the next 14 years.
This persistent Chinese demand, both at the institutional and consumer levels, suggests a fundamental shift in the global gold market’s dynamics. The combination of central bank purchases and robust consumer interest in the world’s most populous nation continues to provide strong support for gold prices, potentially setting the stage for further market gains.
The situation underscores China’s growing influence in the global precious metals market and hints at a longer-term strategic move to reshape its reserve holdings. As this trend continues, market participants worldwide will need to factor in China’s gold appetite when forming their market outlooks and investment strategies.