People in China are so spooked about the economy that even the weak yuan isn’t stopping them from buying more gold

• Gold prices have hit record highs, thanks to global uncertainties and expectations of central bank rate cuts.
• China’s consumers and its central bank are snapping up gold, even as a falling yuan makes the metal pricier.
• Other central banks around the world are also buying gold to diversify their holdings.

China’s economy isn’t in a great place and its currency is floundering. The tumult is sending prices of gold, considered a safe-haven asset, skyrocketing.

Spot gold prices have recently hit record highs — above $2,400 an ounce — thanks to global demand on the back of economic and geopolitical uncertainties. Expectations of central bank interest rate cuts also boost gold’s appeal, since the yields on fixed-income assets like bonds typically fall as rates go down.

In China, consumers are dealing with an economy that is struggling to recover post-pandemic and a weak yuan that has fallen about 5% against the US dollar over the last year. This makes gold — which, like most internationally-traded commodities, is denominated in the US dollar on the global market — even more expensive for the Chinese consumer. But consumers and China’s central bank can’t get enough gold.

Even Gen Z investors in China are getting into the trend as they buy up tiny bottles of “gold beans,” Bloomberg reported last month. They’re looking for alternatives to China’s stock markets, which have been flailing over the last few years.

China’s central bank has also been buying up gold, in much larger quantities than Gen Z’s few grams of beans.

The People’s Bank of China, or PBOC, has been snapping up gold for 17 straight months, with its holdings of the precious metal rising 16% over this period, according to a report from the international trade association World Gold Council. This buying spree coincides with a trend among central banks globally to diversify their holdings to reduce their reliance on the US dollar.

In 2023, China’s central bank bought 225 tons of gold, per the World Gold Council. Last month, China’s gold reserve rose by 5 tons, taking the country’s total stash to 2,262 tons.

China has overtaken India as the world’s largest gold buyer

Since China is now home to swarms of gold bugs, the country has decidedly overtaken India as the world’s largest buyer of the commodity. The two economies have been jostled in the top spots for years, but China’s buying spree last year put India behind.

Last year, China’s demand for gold jewelry rose 10%, to 630 tons acquired, while India’s purchases fell 6%, to 562 tons, according to the World Gold Council. US consumers were a far third place, buying just 136 tons of gold jewelry in 2023.

It’s not just China. World Gold Council data shows other central banks, including Poland and Singapore, have also been snapping up gold to hedge against global economic uncertainties.

India’s central bank bought 16.2 tons of gold last year. The US did not add any gold to its reserves. However, the US already has the world’s largest gold holdings, with about 8,134 tons of the precious metal — far more than second-place Germany, which holds 3,352 tons of the commodity.

Despite the gold rush, Georgette Boele, an economist at Dutch bank ABN AMRO, warned about going all-in on the commodity amid record-high prices in an April 15 note.

“The trend in gold prices is positive and the sky seems to be the limit. However we remain cautious,” wrote Boele.

She highlighted a seeming paradox in the market: High US interest rates would typically keep gold prices muted, but the opposite is happening.

“Even though these changes have occurred in the past, they tend to be temporary in nature meaning that they could last around three to six months,” wrote Boele.

Lofty gold prices now doesn’t mean there’s a supply crunch, she wrote.

“The amount of central bank buying is not justifying gold prices at current levels,” she wrote. Based on that assessment, she said she’s keeping her forecast of $2,000 per ounce of gold at the end of 2024, below the current going rate around $2,400.