Gold prices have shrugged off recent market turmoil, rising nearly 10% this year and repeatedly hitting new highs, now approaching the $3,000 mark. However, record-high prices, China's weak economy, and the additional costs of a strong US dollar have made Chinese consumers cautious. On the other hand, the People's Bank of China has increased its gold purchases in the past three months to support the renminbi, so is gold still one of the best-performing assets this year?
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ToggleChinese consumers shift from physical gold to investment
According to Bloomberg, one of the key drivers of the past year's gold price surge has been demand from China. But record-high prices, a weak economy, and the additional costs of a strong US dollar have made it increasingly expensive for many Chinese consumers, the world's largest buyers, to purchase. The weak performance during the Chinese Lunar New Year gift-giving season also indicates caution among Chinese buyers.
Although China's stock market is volatile and the real estate industry crisis has not been resolved, investment in gold bars and coins remains strong, but with the economic slowdown, jewelry sales have declined. Meanwhile, wholesale withdrawals from exchanges are lower than usual, indicating that people are cutting back on spending and preferring smaller but more exquisitely designed jewelry.
While physical gold demand is weak, HT-supported exchange-traded funds (ETFs) have reached record highs, suggesting that consumers are shifting towards investment.
The PBoC buys gold again
After a six-month pause, the People's Bank of China (PBoC) resumed purchasing gold in November, seeking to diversify its reserves, and has increased its gold purchases for three consecutive months.
Goldman Sachs found that the PBoC's timing of bond purchases has helped support the renminbi.
Daan Struyven, Goldman Sachs' global commodities research head, said:
The PBoC may want to signal confidence in the currency to the market. It wants to show that the renminbi is supported by increasing gold holdings.
Trump's tariff concerns, large amounts of gold and silver bars are being shipped to the US
Meanwhile, the amount of gold stored in London vaults decreased by 4.9 million ounces in January, the largest monthly decline on record.
London is the world's largest gold trading center, with its underground vaults holding around $800 billion worth of gold. Fearing that President Trump may impose tariffs on gold, last month US gold prices soared above London gold prices, providing a profitable arbitrage opportunity for gold holders to transport their holdings across the Atlantic.
Gold prices hit new highs
Gold prices have shrugged off recent market turmoil, decoupling from inflation, risk-averse sentiment, and central bank monetary policies, charting their own course. This year, the price has risen nearly 10%, and the year-over-year gain is as high as 41%.
Gold prices have repeatedly hit new highs, now approaching the $3,000 mark. Will it still be one of the best-performing assets this year?
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