A female consumer shops for gold jewelry in Hohhot,North China's Inner Mongolia Autonomous Region on March 7,2023. Photo: VCG

Gold demand is picking up speed in China, as domestic consumption potential is further stimulated along with a strong economic rebound, and investors in the gold retail market bet on higher gold prices amid a volatile international environment.

More importantly, central banks across the world, especially those from emerging economies, continue to purchase gold in 2023 to diversify their international reserves and cut reliance on the US dollar amid the US' increasing hegemony and weaponization of its currency, analysts said on Tuesday.

"As we're getting married next month, my fiancé planned to buy me a diamond worth 50,000 yuan ($7,243). However, we eventually decided to buy gold jewelry, which we think will be of more value," a Beijing-based white-collar worker named Huang Ying told the Global Times on Monday.

Recently, international gold prices slightly dropped after touching a 13-month high of $2,031 per ounce in early April, prompting investors in retail gold to purchase more.

According to data from market data provider Wind, capital flow into gold ETF has been speeding up since March. For example, Huaan Yifu Gold ETF, which is the largest among all such ETFs in China, posted a capital flow of more than 894 million yuan  since March, according to media reports. 

According to the latest data from the China Gold Association, a total of 114.87 tons of gold was produced in China in the first quarter of 2023, up 6.92 percent year-on-year.The data proved that China's gold production capacity has recovered to pre-epidemic levels in the first quarter of the year and national gold production has steadily rebounded.

China has also maintained its position as the world's largest gold consumer since 2013, and accounted for over 27 percent of the total global demand for gold jewelry in 2022, according to the 30 years of Gold Demand Trends report by the World Gold Council (WGC) in January.

Thanks to a raft of policies to stimulate domestic demand, consumers' willingness to spend continues to improve. "Gold consumption has been hot since the start of 2023, though some consumers now prefer gold jewelry with lower weight due to soaring gold prices. However, May is traditionally a peak season for gold consumption and the upcoming May Day holiday is expected to power more consumption," a salesperson at jewelry retailer Caibai told the Global Times on Monday.

Surging global demand

It's worth noting that global demand for gold reached a new peak in 2022, against the backdrop of the Russia-Ukraine conflict, rising geopolitical tensions, and the worst inflation in nearly 40 years in many global economies.

"The surging gold demand worldwide reflects further recognition of the metal's value as a 'safe haven',  as the weakening of the US economy and several economic and financial crises since the 21st century have undermined other countries' confidence in the US dollar," Zhang Bingnan, former secretary-general of the China Gold Association, told the Global Times on Monday.

Central banks across the world bought a total of 1,136 tons of gold in 2022, up 152 percent year-on-year, according to a separate report by the WGC. The year 2022 was not only the thirteenth consecutive year of net purchases, but also the highest level of annual demand on record dating back to 1950, said the trade body.

In November and December, the People's Bank of China, the country's central bank, announced total gold purchases of 62 tons, lifting its total gold reserves to over 2,000 tons for the first time, according to the trade body.

Other countries such as Turkey reported the largest purchases in 2022. Its official gold reserves swelled by 148 tons to 542 tons, the highest level on record.

"These central banks' moves show that gold still maintains a very important position in the international monetary system and its monetary attribute didn't disappear even as the US increasingly cuts the link between the dollar and gold," Zhou Yinghao, a senior gold analyst at the Bank of Urumqi, told the Global Times on Monday.

Gold is not only a good but also a financial investment tool that could help optimize a country's foreign exchange reserves, prevent financial risks, and increase international reserve security, he said.

Although investing in gold cannot yield interests directly, most central banks have gold as part of their international reserves and dynamically adjust the proportion of gold reserves to ensure the safety, liquidity, and value of their international reserves, according to analysts.

Increasing holdings in gold can help strengthen a country's currency system, Zhou said, pointing out that major Western economies including the US, Germany, and France have gold reserves that exceed 50 percent of their foreign exchange reserves.

Escalating de-dollarization trend

Looking ahead, Zhou forecasts that the price of gold may continue to increase to around $2,200 and $2,400 per ounce. However, this won't affect central banks in continuing to purchase gold in 2023 amid concerns over a global economic recession, rising geopolitical tensions, high inflation, and other risks, he said.

Less sensitive to gold prices, many central banks, especially those from emerging economies, are prompted to purchase gold in order to diversify their foreign exchange reserves, reduce their heavy reliance on the dollar, and help deal with the instability of the international monetary system centered on the dollar, Zhang said, noting that the de-dollarization campaign further elevates the monetary attributes of gold.

The US Federal Reserve (Fed)'s ultra-loose monetary policies since the 2008 financial crisis transmitted its domestic economic woes to the world through the dollar. The Fed's aggressive financial tightening since March 2022 threw some countries into currency or debt crises due to their local currency's depreciation, capital outflow, and rising dollar debt costs.

Those crises, along with the US' increasing weaponization of its currency since the Russia-Ukraine crisis, have prompted countries to hoard gold and actively diversify their reserves by reducing US Treasuries and boosting bilateral currency treaties, according to Zhang.

For instance, China and Brazil have reportedly reached a deal to settle in their own currencies. India and Malaysia can now use the Indian rupee to settle trade in addition to other currencies, the Times of India recently reported.

As part of Russia's de-dollarization campaign, Russia's Finance Ministry said it will reset the share of the euro in its National Wealth Fund starting this year, leaving only gold, Chinese yuan, and rubles, Russian media sources reported in February.