China dominates the world gold market, gold prices expected to increase sharply

China dominates the world gold market

According to the World Gold Council (WGC), China continues to dominate the global gold market with very strong buying activity for the 12th consecutive month. The "shopping party" of the country with the world's second largest economy continues. In October 2023 alone, China bought an additional 23 tons of gold, worth about 1.5 billion USD.

This is the data released by the People's Bank of China (PBOC) and quoted by WGC.

Not only China, central banks of many other countries are stepping up gold purchases in the context of global uncertainty, geopolitical crises occurring in many regions, and stock markets in many countries are in turmoil. Money flows to safe channels, including the US dollar and gold.

The WGC raised its forecast, saying that central banks will set a new record for net gold purchases this year, higher than the record set in 2022.

*Gold purchases by central banks. (Source: WisdomTree)*

Also according to WGC, by the end of October, China bought 204 more tons of gold compared to the beginning of the year, raising its total gold reserves to 2,215 tons, with a total value of more than 140 billion USD.

In the third quarter of 2023, central banks of countries bought a total of 337 tons of gold (equivalent to about 21.3 billion USD). This is also a record amount of gold bought by countries for the third quarter.

Gold purchases in the first 10 months of 2023 exceeded the expectations of WGC experts. Previously, they believed that countries would find it difficult to buy above the record high set last year.

With strong buying power continuing for the rest of the year, central bank gold purchases are set to set a new record, indicating that gold is becoming a strategic choice for countries.

So far this year, central banks have bought 800 tons of gold, worth nearly $51 billion, up 14% from the same period last year. In 2022, these giants bought a record 1,135 tons of gold (worth nearly $72 billion).

Juan Carlos Artigas, head of global research at the WGC, in an interview with Kitco, said that gold is now a comprehensive asset that can play an important role in investment portfolios, providing long-term returns, diversification, especially in times of need, and high liquidity.

goldendiachinhtri kc.jpg — *Crises and fluctuations in gold prices.*

Analysts are not surprised that central banks around the world continue to buy gold to diversify their reserves and reduce their dependence on the US dollar.

In a recent interview with Kitco News, Robert Minter, director of ETF investment strategy at Abrdn, said that the growing debt and deficit of the U.S. government is a growing burden on the U.S. dollar. It is unlikely that the U.S. dollar will lose its status as the world's reserve currency, but countries will continue to diversify their foreign exchange reserves.

Gold fluctuates unpredictably

Recently, many forecasts have said that the US is at the end of its monetary tightening cycle and will soon reverse and cut interest rates when there are some signs that the number 1 economy may fall into a crisis. At that time, the USD will weaken and be the basis for gold prices to increase.

Gold is also often supported by political instability in many regions of the world as well as US-China trade-currency tensions and demand for precious metals from central banks around the world.

However, many experts say that geopolitical risks and economic recession could push gold down completely different paths.

Analysts say the war between Israel and Gaza has prompted many people to seek safe haven assets and gold is a top choice.

*Gold price forecast. (Source: WisdomTree)*

Gold prices fell in late September, with the 50-day moving average (DMA) falling below the 200-day moving average (200-DMA). But recently, gold has recovered significantly, despite headwinds such as high bond yields and a still strong US dollar.

Increasing central bank demand for gold is seen as an important supporting factor for gold's rise despite the Fed maintaining its trend of tightening monetary policy.

According to WGC, gold consumption demand in some major gold markets in the world such as China and Türkiye is still very strong.

Gold is also considered a “safe haven” asset, meaning that during times of economic uncertainty or heightened geopolitical risks, investors have historically turned to the precious metal for protection, driving its price up, analysts from WisdomTree said.

The current turmoil in the Middle East is seen as a bullish event for gold, although it is unclear how long the conflict in the region will last and how severe it will be.

On the other hand, investors are also closely monitoring the US bond market and the fluctuations of the USD. The yield on the US 10-year bond is around its highest level since 2008.

High bond yields put pressure on gold. However, it is also a signal that the US economy may be heading into a recession. And when that happens, gold is a top choice for investors. Gold tends to perform strongly during recessions.

In the bullish scenario, the Fed would respond to warning signs of a recession and begin easing monetary policy in 2024, according to WisdomTree.

And if a recession does materialize, WisdomTree expects inflation to fall back to target. In this scenario, gold could hit $2,300 an ounce in 2024, 12% higher than the all-time high reached in August 2020.

Conversely, if inflation is high and US bond yields stay high for a long time, gold prices could decline, reaching a maximum of $1,670/ounce.

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