Gold Hits Record Highs and China’s Been Buying

Gold Surges to Record Highs Amid Global Economic Shifts and China’s Strategic Buying

Gold prices have reached historic highs in 2024, surpassing $2,600 per ounce in September, marking a two-year rally that began in late 2022. With central banks around the globe, particularly China, increasing their gold holdings, the precious metal continues to be one of the top-performing commodities, offering a hedge against economic uncertainty.

China’s Strategic Gold Purchases Drive the Market

China's aggressive accumulation of gold has been a pivotal force in driving the metal’s price surge. The People's Bank of China (PBoC) increased its gold reserves by 30 percent in 2023, adding 1,037 metric tons. China’s appetite for gold has outpaced that of all other central banks, and by the first quarter of 2024, the PBoC had acquired an additional 290 metric tons. This marked one of the most significant quarterly increases since the buying spree started in late 2022.

While gold prices rose 5 percent quarter-over-quarter during this time, China’s gold reserves grew by 1.3 percent in the first half of the year. These acquisitions exceeded J.P. Morgan's estimate of 850 metric tons for 2024, with net purchases 36 percent above projections. China's gold-buying spree reflects its long-term strategy to reduce dependence on the U.S. dollar amid rising geopolitical tensions and de-dollarization efforts.

The Pause in China’s Gold Purchases: A Tactical Shift?

However, as of June 2024, China’s gold buying has paused, with reserves remaining at 2,264 metric tons. J.P. Morgan analysts have suggested that this may be a temporary, tactical pause in response to fluctuating gold prices and other economic considerations. Despite the slowdown, China's strategy of reducing reliance on U.S. assets, including a substantial sell-off of U.S. Treasury securities, remains evident. By May 2024, China’s holdings of U.S. Treasuries had dropped to $768.30 billion, down from over $1 trillion in early 2022.

Meanwhile, gold exchange-traded funds (ETFs) in China have seen sustained demand, with net inflows for seven consecutive months, reaching a record high of 92 metric tons in June. Total assets under management (AUM) for these ETFs hit RMB 51 billion (US$7 billion) by mid-2024, further highlighting the growing interest in gold as an investment.

Gold’s Role in Geopolitical and Economic Strategies

China’s gold accumulation aligns with the country’s broader efforts to reduce dependence on the U.S. dollar and strengthen its financial sovereignty. As a key member of the BRICS+ bloc, China is part of a collective push to conduct more trade using local currencies. The group, which includes Brazil, Russia, India, China, South Africa, and new entrants such as Saudi Arabia and the UAE, is even exploring the possibility of introducing a gold-backed currency.

As of the first quarter of 2024, BRICS+ central banks held nearly 17 percent of the world’s gold reserves, fueling speculation about the creation of a gold-backed BRICS currency. This movement reflects the bloc’s broader strategy of reducing reliance on the U.S. dollar and mitigating risks posed by global economic instability.

What Lies Ahead for Gold?

Despite the recent pause in central bank purchases, J.P. Morgan and other analysts expect China to resume its gold-buying activities in the near future, maintaining strong demand for the precious metal. China's economic challenges—such as its protracted property crisis, volatile stock markets, and capital controls—are likely to continue driving domestic demand for gold as a safe-haven asset.

Furthermore, China’s commitments to the BRICS+ agenda and its de-dollarization efforts signal a long-term interest in gold as a strategic asset. Analysts predict that central banks globally, especially in emerging markets, will remain net buyers of gold, providing a solid price floor for the metal as geopolitical and economic tensions persist.

As the price of a standard gold bar climbs above $1,000,000 and gold posts a nearly 27% year-to-date increase, the metal’s relevance in unstable global markets will likely grow. Investors, both in China and worldwide, are expected to continue turning to gold as a hedge against inflation, currency devaluation, and broader market instability.

With China remaining a central player in global gold markets, and central banks worldwide signaling ongoing interest in gold, the outlook for the precious metal remains bullish for the rest of 2024 and beyond.