Amidst the glimmering allure of gold, especially in present-day China, the demand for gold purchases has sharply escalated. It is not due to a sudden surge in popularity of gold jewelry but rather a shift towards holding gold bars and coins as a safe haven for wealth preservation during tumultuous times – a practice steeped in history. With the ongoing real estate crisis under the Chinese Communist Party (CCP) which continues to drag down property values, the economy facing widespread challenges, potential unfriendly trade policies from Western countries targeting China, and little expectation for effective policies from the CCP to reverse the economic downturn, these gold buyers have ample reasons to take action.
One might assume that the gold price reaching over $2800 per ounce would dampen the enthusiasm for purchasing gold. Looking back at the past under the CCP, this seemed to be the case when it came to jewelry purchases. In the first three quarters of traceable data in 2024, gold jewelry purchases in China plummeted by about 28% compared to the same period in the previous year.
However, for classic wealth shelters like gold bars and coins, purchases surged by 27% during the same period. Although there isn’t the latest comprehensive data available, anecdotal evidence suggests a rapid pace of gold buying among the public. According to Chen Weidong, director of the Chinese Banking Research Institute based in Beijing, demand for gold bars in the retail sector has drastically risen, with gold inventory at Guangzhou Dongshan Department Store being sold out and prices spiking by 10% within just a few weeks.
The current dire economic situation under the CCP regime has left the wealth of Chinese people with nowhere to hide, potentially explaining the recent surge in real estate purchases. However, the alarming real estate crisis in China shows no signs of easing. Despite the CCP government’s efforts to stem the situation, residential construction continues to decline, and the housing market remains sluggish. Since the real estate crisis erupted in 2021, property prices in China have dropped by at least 12%. These losses have made it increasingly challenging for the Chinese financial sector to support economic growth, leaving considerable gaps in household wealth nationwide and curbing consumer spending, presenting another obstacle to economic growth. Particularly as the CCP government had taken a laissez-faire approach for years, only starting to address these issues towards the end of 2023 with little success. Consequently, ordinary citizens have little reason to invest their wealth in real estate or other business activities.
Furthermore, the uncertain geopolitical landscape has added another reason for Chinese people to turn to gold investments. People in China cannot ignore this when managing their wealth. The world is far from stable, with conflicts raging in Europe and the Middle East. Meanwhile, the U.S., European Union, and Japan are all reconsidering their trade relations with the CCP and uniformly adopting antagonistic strategies. Even though the U.S. election has concluded, uncertainties persist in Washington’s domestic and global policies. The U.S. has not completely eliminated the threat of inflation, making the trajectory of bank interest rates uncertain. Another driving force behind the Chinese enthusiasm for purchasing gold is the ongoing trend of de-dollarization led by CCP-influenced countries, prompting many central banks to increase their gold reserves.
From a practical standpoint, whether the CCP government can implement effective policies to address the country’s economic and financial issues remains an unknown variable. Historical experiences suggest that the CCP regime is unlikely to achieve this. Various indicators reflect that concerns about the worsening economic or financial situation in China among the domestic population are unlikely to dissipate in the short term. As for the U.S., despite Trump securing a second term as president at the start of the next year, it will take several more months for clarity on U.S. policies or the geopolitical situation. Consequently, the Chinese enthusiasm for gold is likely to persist, perhaps not as fervently as recently, but certainly not reversing course anytime soon.