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China’s citizens and central bank are buying gold at a record pace, which is likely to continue to propel the metal’s rally even higher, according to multiple reports.

Gold has risen 45% from $1,643.55 in September 2022 to a high of $2,390.35 on April 17, 2024, World Gold Council data shows. On May 6, U.S. gold futures were at $2,329.10.

Several factors have been pushing gold prices high.

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Inflation in the U.S. and Europe stubbornly continues, as the Biden administration continues to deficit spend at the rate of about $1 trillion every 100 days.

Economic jitters have been compounded by growing war fears in Europe with Ukraine, Israel and Iran, and China’s aggressive posture toward Taiwan.

There’s still room for demand to grow, Philip Klapwijk, managing director of Precious Metals Insights Ltd. of Hong Kong, tells Bloomberg. While Chinese consumers have rushed into gold when prices have dropped — establishing a floor for gold during periods of weakness — that is not happening this time.

“The weight of money available under these circumstances for an asset like gold — and actually for new buyers to come in — is pretty considerable,” Klapwijk says. “There isn’t much alternative in China,” he says, referring to China’s crashed real estate market, volatile stocks and weakening yuan, and investors’ hunt for safety.

“With exchange controls and capital controls, you can’t just look at other markets to put your money into,” Klapwijk says.

Gold’s climb is notable in that it is in the face of higher interest rates and a strong U.S. dollar, two factors that typically weaken its value. Experts attribute gold’s resilience to speculators and the whims of Chinese buyers.

“China is unquestionably driving the price of gold,” says Ross Norman, chief executive of MetalsDaily.com of London. “The flow of gold to China has gone from solid to an absolute torrent.”

Gold bar and coin investments in China rose 28% in 2023, while gold jewelry demand rose 10%. Year to date, gold sales in China are up 6%, according to the China Gold Association.

The People’s Bank of China, the nation’s central bank, has added to its gold reserve for 17 straight months, buying more of the metal than any other central bank in 2023, and at a rate by the bank not seen in nearly 50 years.

China’s move is to diversify its funds and reduce its dependence on the U.S. dollar. It has also been scaling back its U.S. Treasury holdings for the past decade; China held $775 billion of U.S. debt in March, down 29% from $1.1 trillion in 2021.

A catalyst that prompted China and other central banks around the world to increase their gold holdings was the U.S. Treasury Department’s rare step of freezing Russia’s dollar holdings under sanctions. U.S. allies then imposed similar restrictions on their currencies.

These sanctions shook the “foundation of trust for the current international monetary system” and caused them to diversify their reserves, including into gold, said Guan Tao, global chief economist at BOC International in Beijing.

Given that gold is nearly 9% of India’s foreign exchange reserves but just 4.6% of China’s, there is a lot of room on the upside for buying by the People’s Bank of China, experts say.

“We can see this wave of gold’s rise may be different from the past,” Guan says.

Average trading volume for gold on the Shanghai Futures Exchange more than doubled in April from a year earlier.

“They are swimming with the tide,” Norman says of Chinese investors’ enthusiasm for gold. “China is now dominating the gold market.”

Investors worldwide can be comforted by China’s steady demand, says Nikos Kavalis, managing director at consultancy Metals Focus Ltd.

China’s state media, however, has warned investors to be careful chasing the rally, and the Shanghai Gold Exchange and Shanghai Futures Exchange have both raised margin requirements.

A safer way to buy gold is through exchange-traded funds. In China, gold ETFs have attracted net inflows nearly every month in the past year, according to Bloomberg Intelligence. Worldwide, gold funds have seen net outflows in that time.

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