Chinese measures lift Gold prices

Gold prices surged to a two-week high on Monday, December 9th, driven by China’s central bank resuming gold purchases and the country’s plans for additional economic stimulus measures. Traders are also eagerly awaiting key US economic data, which could influence the Federal Reserve’s upcoming rate decision.

Daily Gold Chart - Source: ActivTrader

Gold prices are currently trading near their highest levels since late November, maintaining strong gains despite recent fluctuations. While the metal has retreated nearly 5% from its all-time high above $2,789 reached in September, it remains up over 30% year-to-date, reflecting robust investor and trader interest.

At present, Gold is moving within the Ichimoku cloud, suggesting a phase of consolidation, with the Relative Strength Index (RSI) indicator hovering near its neutral benchmark of 50. This typically signals a state of equilibrium between buyers and sellers.

For traders, this technical setup could indicate caution, as a clear breakout from the Ichimoku cloud may provide a more decisive signal for entering positions. A move above the cloud could suggest renewed bullish momentum, while a dip below might signal bearish pressure.

Why is China buying Gold again? A look at central bank strategy and broader market trends

China’s central bank has resumed buying Gold for its reserves after a six-month pause, signaling continued efforts to diversify its holdings and shield the economy from currency-related risks. This move, coupled with rising Gold demand among Chinese and Indian households, highlights a growing shift toward the precious metal as both a reserve and investment asset in the face of global economic uncertainties.

China’s Gold purchases: A strategic resumption

Official data released by the People’s Bank of China (PBOC) over the weekend revealed an increase in its Gold holdings to 72.96 million fine troy ounces at the end of November 2024, up from 72.80 million fine troy ounces in October. This equates to an addition of approximately 5 tons of gold in November.

The resumption comes after the PBOC paused its 18-month streak of consistent Gold purchases in May 2024. Between late 2022 and early 2024, the PBOC had been a leading global buyer of Gold, with consistent monthly additions to its reserves helping support bullion prices globally. 

Diversification in the face of geopolitical risks

China’s renewed focus on Gold aligns with a broader strategy observed among emerging market central banks, including those from the BRICS+ bloc. 

This coalition, which includes China, Russia, and several other major economies, controls approximately 42% of global central bank foreign exchange reserves and has been actively exploring alternatives to the U.S. dollar. This exploration is a key driver of the global de-dollarization process, as nations seek to reduce their dependence on the dollar amid growing geopolitical and economic tensions.

Gold has emerged as the most viable alternative reserve asset for these economies, offering protection against the potential volatility of the U.S. dollar and financial sanctions that often leverage the dollar’s dominance in global trade. By diversifying their reserves into Gold, BRICS+ nations aim to strengthen economic resilience while reducing exposure to external pressures.

However, these moves toward de-dollarization have not gone unnoticed. U.S. President-elect Donald Trump has issued warnings to the bloc, threatening to impose 100% tariffs on the coalition of nine nations if they proceed with creating a rival currency to the dollar. These potential tariffs represent a significant geopolitical risk, as they could escalate tensions between the U.S. and emerging markets, further driving these nations to hedge their reserves with Gold.

China’s recent resumption of Gold purchases reflects this broader geopolitical strategy. In seeking alternatives to the dollar, the People’s Bank of China (PBOC) not only reinforces its financial stability but also contributes to a wider trend among emerging economies—leveraging Gold as a hedge against external shocks and as a tool for navigating an increasingly uncertain global economic landscape.

Rising Gold demand from households

China’s appetite for Gold is not limited to its central bank. Chinese households have significantly increased their investments in gold over the past year, excluding jewelry purchases. From Q1 2023 to Q1 2024, household investment in gold surged by 68%, according to the World Gold Council. Similarly, Indian households, buoyed by higher savings capacity, saw a 19% increase in gold investments during the same period.

Several factors are driving this surge, such as declining real estate and equity markets in China, and increased savings capacity in India. In China, a prolonged property downturn and underperforming stock markets have pushed investors toward Gold as a safer and more stable asset. In India, rising disposable income has allowed households to diversify their savings, with Gold remaining a traditional and trusted investment vehicle.

Bottom line

The PBOC’s purchasing activity has a ripple effect on global bullion markets. As one of the world’s largest official buyers of Gold, China’s resumption of acquisitions, even at a modest level, helps underpin prices, especially amid ongoing geopolitical and economic uncertainties.

The broader trend of central banks diversifying into Gold—driven by financial sanctions and currency risks—has also provided a tailwind for Gold prices, which remain near record-high levels. Some analysts suggest that if this pattern continues, bullion could retain its appeal as a preferred asset class, especially for emerging markets.

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