The share of global gold demand in Asia has increased from 45% to nearly 60% over the past three decades, driven by the evolving economies of China and India. The migration of gold from the West to the East has seen China and India account for approximately 50% of gold demand, with India being the second-largest gold-consuming country in the world, behind China.
Gold plays a significant role in numerous marriage ceremonies and cultural rites within India, with 87% of households owning some amount of the yellow metal. India’s gold revolution began in the early-to-mid 90s, with demand increasing from 340 tons in 1992 to 742 tons in 2022. As the economy and affluence of countries across Asia continue to rise, so too has the demand for gold, with imports increasing in Turkey, Thailand, and Saudi Arabia.
The trend of gold consumption has translated into central bank gold buying, with the nations continuing to add gold to their reserves including China, India, Turkey, and Singapore. The steady migration of gold from West to East across three decades has significant implications for global financial power and influence, as China and India continue to grow in the marketplace.
China, known for its robust economy and vast foreign exchange reserves, has been significantly increasing its gold reserves, indicating a strategic shift in its international finance policy and a deliberate attempt to diversify its foreign reserves. The People’s Bank of China has been acquiring gold at an accelerated pace, marking five consecutive months of purchases and accumulating 120 tonnes since November 2022. As of the first quarter of 2023, China’s gold reserves rose to a record 2,068.36 tonnes.
Building International Credibility with Gold
China’s pursuit of gold is viewed as part of its broader strategy to build international credibility for the yuan and compete with the US dollar as a world reserve currency. China’s central bank was one of the largest buyers in 2022, accounting for nearly half of the global gold purchases. This trend of ‘dedollarization’ is expected to persist, providing long-term support for gold.
Gold as a Safe-Haven Asset
Gold’s traditional role as a safe-haven asset in times of economic uncertainty has been amplified in the current climate of recession and inflation risks. Concerns about the U.S. government defaulting on its debt obligations have also boosted gold’s appeal. Central banks worldwide have been increasing their gold reserves, indicating a global trend of rising demand for this precious metal.
Impact on the Gold Market
China’s aggressive gold purchases have contributed to a surge in gold prices, with experts predicting new record highs. China’s presence in the gold market is reshaping the investment landscape and creating solid value for investors.
Furthermore, gold’s diverse demand in various sectors, such as jewelry, technology, and as reserve asset, contributes to its strength as an investment asset. In the context of China, it’s noteworthy to mention the significant retail sales of gold, silver, and jewelry, contributing to the overall market demand.
China’s continuous increase in gold reserves illustrates its strategic move towards building a more diversified portfolio of foreign reserves. As China’s gold acquisition strategy unfolds, the world watches closely for potential impacts on the global economy, currency markets, and gold prices. With increasing uncertainties around global economic and political scenarios, gold is set to retain its charm as a preferred safe-haven asset and a hedge against volatility.