Chinese Buying Set the Stage for Gold’s Latest Record Run

(Bloomberg) — This week’s gold rush may have been triggered by bets on the US Federal Reserve’s long-anticipated pivot to looser monetary policy, but the foundations for the record rally were laid in China.

After months of mostly treading water, the gold market suddenly sprang to life last Friday. Prices breached December’s record on Tuesday and have jumped to successive daily highs ever since.

Read: Gold Extends Record Run With $2,200 in Sight After US Jobs Data

The rally itself was peculiar: gold tends to spike in response to globe-shaking geopolitical or economic developments, and nothing particularly noteworthy had happened to justify the surge. The sharp climb higher has left many analysts and other market watchers casting around for explanations, from big investment funds taking a renewed interest in gold, to the role of algorithmic traders that follow momentum in the market, fueling volatility.

But the reality is that prices didn’t actually have that far to go before hitting record territory. Gold has been trading for months around the $2,000 mark — a level that would have been viewed as stratospheric just a few years ago, and which was only breached for the first time in 2020 as the global pandemic raged. Even more unusually, prices have traded at such elevated levels despite sky-high real interest rates that are typically bad for gold, which doesn’t pay interest.

Why were prices so high in the first place? That’s where China comes in.

While many western investors did indeed dump gold holdings as rates soared last year, global demand was underpinned instead by massive purchases by central banks in emerging market countries, led by China. And regular people are buying too — consumers in China have been stocking up on coins, bars and jewelry despite the high prices, to protect their wealth against turmoil in the country’s stock market and property sector.

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