When gold prices rose to their highest ever this year, Xena Lin joined the hype by buying monthly gold beans, pebble-like pieces of the precious metal.
For Ms. Lin, a 25-year-old administrative worker in southern China, the $80 beans — small enough to rest on a fingertip and weighing about one-thirtieth of an ounce — were an affordable way to buy into the gold excitement without spending any money for jewelry, gold bars or coins. She had tried investing in stocks in the past, but she said buying gold, especially in this fun way, inspired her to continue investing.
“I’m still working hard to save more,” Ms. Lin said.
Often considered a safe investment in times of geopolitical and economic turmoil, gold has surged in response to Russia’s invasion of Ukraine and the war in Gaza. But gold’s rise to highs above $2,400 an ounce has proven more resilient and longer-lasting thanks to China.
Chinese consumers are flocking to gold as their confidence in traditional investments such as real estate and stocks has waned. At the same time, the country’s central bank has steadily increased its gold reserves while reducing its holdings of US debt. And Chinese speculators are betting there is still room for appreciation, adding fuel to the fire.
China has already had a significant impact on gold markets. But the country’s influence has become more evident during this latest bull run – a nearly 50 percent increase in global prices since the end of 2022. The country continued to scale new heights despite factors that traditionally make gold a comparatively less attractive investment: higher interest rates and a stronger U.S. dollar.
Last month, gold prices jumped despite the Federal Reserve signaling it would keep interest rates on hold for longer. And it has continued to appreciate even as the dollar has risen against almost all of the world’s major currencies this year.
Prices have fallen to around $2,300 an ounce, but there is growing sentiment that the gold market is no longer driven by economic factors but by the whims of Chinese buyers and investors.
“China is undoubtedly driving gold prices,” said Ross Norman, chief executive of MetalsDaily.com, a London-based precious metals information platform. “The flow of gold to China has turned from a solid to a real stream.”
According to the China Gold Association, gold consumption in the country rose 6 percent year-on-year in the first quarter. This was followed by a 9 percent increase last year.
Gold investments became more attractive as traditional investments lost their luster. China’s real estate sector, the destination of most family savings, remains in crisis. Investors’ confidence in the country’s stock markets has not yet fully returned. A number of large investment funds aimed at wealthy people failed after bets on real estate failed.
With few better alternatives available, money flowed into Chinese funds that traded gold, and many young people began collecting beans in tiny quantities.
Online retailers are selling gold beans aggressively. On Alibaba’s Taobao, one of China’s largest e-commerce platforms, a merchant sold gold beans on a livestream – a mix of Home Shopping Network and Amazon. She said buying beans was “like shopping, but an investment.”
The tiny beans came in five shapes, including one that resembled a peanut and another that resembled a persimmon. At $87 a bean, you can get in on the gold boom for the price of a hot pot meal, she said.
Kelly Zhong, a teacher in Beijing, started buying gold in 2020 at the start of the pandemic. She has amassed more than two pounds of gold bars, but she has also invested in the metal through exchange-traded funds. She said she was inspired by an old saying: “Jade in prosperous times, gold in difficult times.”
Sensing that the world was becoming more and more chaotic, Ms. Zhong stocked up and bet that the price of gold would only go up. She has stopped buying but is not ready to sell. She sees no reason to. The Chinese economy is still struggling and neither real estate nor stocks seem to be a viable investment.
“The money has to go somewhere,” she said.
Another important buyer of gold in China is the country’s central bank. In March, the People’s Bank of China increased its gold reserves for the 17th consecutive month. Last year the bank bought more gold than any other central bank in the world, increasing its reserves by the most in almost 50 years.
Beijing is buying gold to diversify its reserve funds and reduce its dependence on the U.S. dollar, long considered the main reserve currency. China has been reducing its U.S. Treasury holdings for more than a decade. As of March, China had about $775 billion worth of U.S. debt, compared to about $1.1 trillion in 2021.
When China increased its gold holdings in the past, it bought domestically using renminbi, said Guan Tao, chief global economist at BOC International in Beijing. But this time, he said, the bank was using foreign currencies to buy gold, effectively reducing its exposure to the U.S. dollar and other currencies.
Many central banks, including China, began purchasing gold after the U.S. Treasury took the rare step of freezing Russia’s dollar holdings due to sanctions imposed on Moscow. Other American allies imposed similar restrictions on their currencies.
Mr Guan said the sanctions had shaken the “confidence of the current international monetary system” and forced central banks to protect their reserves with more diverse holdings. “We can see that this wave of gold rising may be different from the past,” he said.
Although Beijing is buying gold, the metal only accounts for about 4.6 percent of China’s foreign exchange reserves. In percentage terms, India holds almost twice as much of its gold reserves.
The combination of aggressive retail buying by Chinese consumers and central bank purchases has piqued interest from speculators in Shanghai markets who are betting the trend will continue. The average trading volume for gold on the Shanghai Futures Exchange more than doubled in April compared to the previous year.
“They go with the flow,” said Mr. Norman of MetalsDaily. “China now dominates the gold market.”
For Ms. Lin, buying golden beans is satisfying, she said, because it feels like frivolous shopping, but she is actually investing her money in something she can touch. She said she would continue to buy more beans.
“The price of gold always goes up and down,” she said. “But the increase is within what I can tolerate, so I think it’s OK.”
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2024-05-05 04:00:09
www.nytimes.com
