Gold demand in China, the world’s top producer of the commodity, is expected to be a catalyst driving up the metal’s spot price next year. Britain’s analytics firm Capital Economics highlighted this prediction in a recent research report.
The firm’s commodities economist, Hamad Hussain, says the Asian nation’s weakening currency and struggles with its real estate industry will be significantly responsible.
“We think that the slow-motion collapse of China’s property sector will be a major headwind to economic growth and boost safe-haven demand for gold,” Hussain said. “Given the deterioration in the outlook for Chinese equities and the prospect of a markedly weaker renminbi [Chinese Yuan], China’s demand for gold in 2025 will be stronger than we had previously expected.”
His sentiment about gold’s popularity as a “safe haven” asset for China was affirmed by recent data from the Hong Kong Census and Statistics Department showing that China had imported over 33 metric tons of the yellow metal via Hong Kong in November — a 7-month high.
Moreover, a report from the World Gold Council earlier this year showed that the People’s Bank of China (PBOC) had been upping its gold reserves for 17 consecutive months.
Hussain touched on this subject in his report.
“China’s central bank (PBOC) will continue tilting its $3 trillion stock of reserves towards gold,” he said, adding that the PBOC had purchased more gold than any other central bank in the world since 2022.
“Support from strong Chinese demand, amongst other non-traditional drivers, will result in gold prices reaching US$2,750 by end-2025,” Hussain concluded in the Dec. 17 article.
He estimated in Q3 that the country’s appetite for gold would grow as its economy slows for the remainder of the decade.
“Gold’s rally in 2024 was driven by many factors, ranging from the buying spree of many central banks, including the PBOC, as they want to invest their reserves in gold and diversify from holding US dollar assets,” Anderson Cheung, another analyst from the Hong Kong financial firm Best Profit Capital, said recently.
China leads in global gold production.
China is also slowly divesting from US Treasuries into precious metals, including gold.#Gold pic.twitter.com/y8qgTp1Cr3
— Jason Smith – 上官杰文 (@ShangguanJiewen) May 5, 2024
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China discovered behemoth gold deposit last month
Although the country is already the number one producer, domestic gold production is expected to increase even more following the pivotal discovery of a “supergiant” gold deposit in the Hunan province.
It is estimated to contain about 1,000 tons, valued at around US$83 billion, upping China’s gold reserves immensely.
This major discovery received widespread media attention. Gold surged to about US$2,700 an ounce after this occurrence, and although there is no definitive proof that it was solely responsible, many have speculated that it contributed to the metal’s ongoing rally.
“China is the world’s centre of gold power,” broker and stock market analyst, Jonathan Maverick, wrote in July.
The Asian economic superpower is also the world’s top consumer of the commodity. Gold holds immense cultural significance there.
rowan@mugglehead.com
