As gold rose to its highest price in history this year, Xena Lin joined the frenzy by making monthly purchases of gold “beans,” pebble-like morsels of the precious metal.
For Lin, a 25-year-old white-collar worker in southern China, the $80 beans (small enough to fit on the tip of a finger and weigh about one-thirtieth of an ounce) were an affordable way to participate in the excitement of gold without wasting it. for jewelry, gold bars or coins. She had dabbled in investing in stocks in the past, but she said buying gold, especially in this fun way, inspired her to continue investing.
“I’m still working hard to save more,” Ms. Lin said.
Often considered a safe investment in times of geopolitical and economic turmoil, the price of gold has soared in response to the Russian invasion of Ukraine and the war in Gaza. But gold’s rise to highs above $2,400 an ounce has proven more resilient and durable thanks to China.
Chinese consumers have flocked to gold as their confidence in traditional investments such as real estate or stocks has wavered. At the same time, the country’s central bank has steadily increased its gold reserves while reducing its holdings of US debt. And adding fuel to the fire are Chinese speculators who are betting that there is still room for appreciation.
China already had considerable influence in the gold markets. But the country’s influence has become more pronounced during this latest bull run: a nearly 50 percent rise in global price since the end of 2022. It has continued to scale new heights despite factors that traditionally make gold a comparatively less expensive investment. attractive: higher interest rates and a strong US dollar.
Last month, gold prices rose even after the Federal Reserve signaled it would keep interest rates higher for longer. And it has continued to appreciate even as the dollar has risen against nearly every major currency in the world this year.
Prices have retreated to around $2,300 per ounce, but there is a growing sentiment that the gold market is no longer governed by economic factors but by the whims of Chinese buyers and investors.
“China is certainly driving the price of gold,” said Ross Norman, chief executive of MetalsDaily.com, a London-based precious metals information platform. “The flow of gold into China has gone from solid to outright torrent.”
Gold consumption in the country rose 6 percent in the first quarter from a year earlier, according to the China Gold Association. It came on the heels of a 9 percent increase last year.
Investing in gold became more attractive as traditional investments lost their shine. China’s real estate sector, the destination of most families’ savings, remains in crisis. Investor confidence in the country’s stock markets has not fully returned. A series of large investment funds targeting the wealthy collapsed after failed bets on real estate.
With few better alternatives available, money flowed into Chinese gold-trading funds, and many young people took up collecting beans in small quantities.
Online traders are aggressively selling gold grains. On Alibaba’s Taobao, one of China’s largest e-commerce platforms, a merchant sold gold beans on a livestream, a combination of Home Shopping Network and Amazon. He said buying beans was “like shopping, but an investment.”
The little beans came in five shapes, including one that looked like a peanut and another like a persimmon. By paying $87 per bean, a person could take advantage of the gold boom for the price of a hot meal, she said.
Kelly Zhong, a teacher in Beijing, started buying gold in 2020, at the beginning of the pandemic. She has accumulated more than two pounds worth of gold bullion, but has also invested in the metal through exchange-traded funds. She said she was inspired by an old saying: “I jade in prosperous times, I gold in difficult times.”
As she felt the world was becoming more chaotic, Ms. Zhong increased her reserves, betting that gold prices would only rise. She has stopped buying, but is not willing to sell. She sees no reason to do so. The Chinese economy is still struggling and neither real estate nor stocks seem like a good investment.
“The money has to go somewhere,” he said.
Another major buyer of gold in China is the country’s central bank. In March, the People’s Bank of China increased its gold reserves for the 17th consecutive month. Last year, the bank bought more gold than any other central bank in the world, adding to its reserves more than it had in almost 50 years.
Beijing is buying gold to diversify its reserve funds and reduce its dependence on the US dollar, long considered the most important currency to hold in reserve. China has been reducing its US Treasury holdings for more than a decade. In March, China had about $775 billion of U.S. debt, up from about $1.1 trillion in 2021.
When China increased its gold holdings in the past, it bought domestically using the renminbi, said Guan Tao, global chief economist at BOC International in Beijing. But this time, he said, the bank is using foreign currencies to buy gold, effectively reducing its exposure to the U.S. dollar and other currencies.
Many central banks, including China, began acquiring gold after the US Treasury Department took the rare step of freezing Russia’s dollar holdings under sanctions imposed on Moscow. Other American allies imposed similar restrictions on their currencies.
Guan said the sanctions had shaken the “foundations of trust in the current international monetary system” and forced central banks to protect their reserves with more diverse holdings. “We can see that this wave of gold rally may be different from the past,” he said.
Although Beijing has been buying gold, the metal accounts for only about 4.6 percent of China’s foreign exchange reserves. In percentage terms, India has almost double its reserves in gold.
The combination of aggressive retail buying by Chinese consumers and buying by central banks has sparked the interest of speculators in Shanghai markets, who are betting that this trend will continue. Average gold trading volume on the Shanghai Futures Exchange more than doubled in April from a year earlier.
“They’re swimming with the tide,” said MetalsDaily’s Norman. “China now dominates the gold market.”
For Ms. Lin, buying gold grains is satisfying, she said, because it seems like a frivolous purchase, but she is actually investing her money in something she can touch. She said that she would continue buying more beans.
“The price of gold always goes up and down,” he said. “But the increase is within the range I can bear, so I think it’s okay.”