As gold soars to record highs this year, Zena Lin joined in the frenzy by buying a gold “bean” (a pebble-like grain of the precious metal) every month.
For Lin, a 25-year-old government worker in southern China, the $80 beans (small enough to fit on your fingertip and weighing about a third of an ounce) are an affordable way to buy into the excitement of gold without splurging. Ta. jewelry, gold bars, coins, etc. Although she had dabbled in stock investing in the past, she said it was this fun way to buy gold in particular that inspired her to continue investing.
“I’m still working hard to save more,” Lin said.
Gold, often considered a safe investment in times of geopolitical and economic turmoil, has soared in price following Russia’s invasion of Ukraine and the war in Gaza. But thanks to China, gold’s rally to highs above $2,400 an ounce proved more resilient and longer lasting.
Chinese consumers are flocking to gold as confidence in traditional investments such as real estate and stocks is shaken. At the same time, the country’s central bank has steadily increased its gold reserves while reducing its holdings of U.S. Treasuries. Adding fuel to the fire are Chinese speculators betting there is still room for valuation.
China already had considerable influence in the gold market. But in this recent bull market, the country’s influence has become more pronounced, with global prices rising by nearly 50% since late 2022. It continued to scale new heights despite factors that traditionally make gold a relatively unattractive investment as an investment, such as rising interest rates and rising interest rates. strong US dollar.
Gold prices soared even after the US Federal Reserve signaled last month that interest rates would remain high for an extended period of time. And even though the dollar has appreciated against nearly every major currency in the world this year, it continues to rise.
Although prices have returned to around $2,300 an ounce, there is a growing view that the gold market is no longer driven by economics but by the whims of Chinese buyers and investors.
“There’s no doubt that China is driving up the price of gold,” said Ross Norman, chief executive of London-based precious metals information platform MetalsDaily.com. “The flow of money to China has gone from solid to absolute torrent.”
The country’s gold consumption rose 6% in the first quarter from a year earlier, according to the China Gold Association. This increase follows last year’s 9% increase.
As traditional investments have been lackluster, investing in gold has become more attractive. China’s real estate sector, where most households save money, remains in crisis. Investor confidence in the country’s stock market has not fully returned. Major investment funds for the wealthy failed to make bets on real estate and went bankrupt one after another.
With few better alternatives, money poured into Chinese funds that traded gold, and many young people began collecting small amounts of beans.
Online vendors are aggressively selling gold beans. On Alibaba’s Taobao, one of China’s largest e-commerce platforms, a merchant sold gold beans in a livestream that combined his shopping network with Amazon. She said buying beans is “like shopping, but it’s an investment.”
There were five types of small beans, including peanut-shaped and persimmon-shaped. If you pay $87 per bean, you can ride the money boom at the price of a hot pot meal.
Kelly Zhong, a teacher in Beijing, started buying gold in 2020 at the beginning of the pandemic. She has accumulated more than 2 pounds of gold bars, but also invests in the metal through her exchange-traded fund. She said she was inspired by the old saying, “Jade in prosperous times, gold in difficult times.”
Sensing that the world was becoming more chaotic, Zhong increased his stockpiles, betting that the price of gold would only rise. She has stopped buying, but she is not ready to sell. She sees no reason to do so. China’s economy is still in a slump, and I don’t think real estate or stocks are sound investments.
“The money has to go somewhere,” she said.
The other major buyer of gold in China is the country’s central bank. The People’s Bank of China increased its gold reserves in March for the 17th consecutive month. The bank bought more gold last year than any other central bank in the world, increasing its reserves by more than it had in nearly 50 years.
The Chinese government has been buying gold to diversify its reserves and reduce dependence on the US dollar, long considered the most important currency to hold in reserves. China has been reducing its holdings of U.S. debt for more than a decade. As of March, China’s U.S. debt was worth about $775 billion, down from about $1.1 trillion in 2021.
When China increased its gold holdings in the past, it used the yuan to buy gold domestically, said Guan Tao, global chief economist at BOC International in Beijing. But this time, the bank is using foreign currencies to buy gold, effectively reducing its exposure to the US dollar and other currencies, he said.
Many central banks, including China’s, began acquiring gold after the U.S. Treasury took the unusual step of freezing Russian dollar holdings under sanctions against Russia. Other American allies imposed similar restrictions on their currencies.
Guan said the sanctions had shaken “the foundations of confidence in the current international monetary system” and required central banks to protect their foreign exchange reserves with more diversified holdings. “It shows that this wave of gold rally may be different from past ones,” he said.
Although the Chinese government continues to hoard gold, gold only accounts for about 4.6% of China’s foreign exchange reserves. In percentage terms, India has almost twice its gold reserves.
The combination of aggressive retail purchases by Chinese consumers and purchases by the central bank has attracted the attention of speculators in the Shanghai market who are betting the trend will continue. The average trading volume of gold on the Shanghai Futures Exchange more than doubled in April compared to the same period last year.
“They’re swimming with the tide,” said Norman of Metals Daily. “China now dominates the gold market.”
For Lin, buying red beans is satisfying, she says. Because while it feels like a frivolous purchase, you’re actually investing money in something you can touch. She will continue to buy beans, she said.
“Gold prices go up and down all the time,” she said. “However, I think it’s okay because the increase is within a tolerable range.”
