China has played a crucial role in prolonging and strengthening the surge in gold prices, which is typically perceived as a secure investment during periods of geopolitical and economic instability. This upward trend, triggered by Russia's invasion of Ukraine and the conflict in the Gaza Strip, has seen gold reach unprecedented levels surpassing $2,400 per ounce.
Xena Lin, a 25-year-old administrative worker from southern China, has joined the gold frenzy by regularly purchasing small, pebble-like quantities of gold known as "beans." With gold prices reaching record highs, these $80 beans, weighing about one-thirtieth of an ounce and small enough to rest on a fingertip, provide an affordable way for Lin to participate in the gold market without splurging on jewelry or larger gold bars or coins. Lin, who previously dabbled in stock investing, finds buying gold beans in this fun manner inspiring and plans to continue investing while working hard to save more.
Gold has traditionally been considered a safe investment during times of geopolitical and economic turmoil. Its price surge to above $2,400 per ounce, driven by Russia's invasion of Ukraine and the conflict in the Gaza Strip, has been further bolstered by Chinese consumers. Chinese investors have turned to gold as their confidence in traditional investments like real estate and stocks waned. Additionally, the Chinese central bank has been steadily increasing its gold reserves while reducing its holdings of U.S. debt. Chinese speculators have also contributed to the gold market's upward momentum, betting on further appreciation.
China's influence in the gold market has become more pronounced during this bull run, which has seen a nearly 50% increase in global gold prices since late 2022. Surprisingly, gold's climb has continued despite factors that typically make it a less attractive investment, such as higher interest rates and a strong U.S. dollar. Even after the Federal Reserve indicated its intention to maintain higher interest rates for longer, gold prices continued to rise. Furthermore, gold has appreciated despite the dollar's strength against most major currencies.
While the price of gold has retraced slightly to around $2,300 per ounce, there is a prevailing sentiment that the gold market is now governed not by economic factors but by the whims of Chinese buyers and investors. Ross Norman, CEO of MetalsDaily.com, describes China as the unquestionable driving force behind the gold price, with the flow of gold to China transitioning from solid to an absolute torrent. Gold consumption in China increased by 6% in the first quarter compared to the previous year, following a 9% increase in the previous year.
Gold investments have become more attractive as traditional investment options have underperformed. China's real estate sector, which was once the preferred destination for most families' savings, is facing a crisis. Investor confidence in the country's stock markets has not fully recovered, and several major investment funds targeting the wealthy have collapsed due to failed real estate bets. With limited alternatives, money has flowed into Chinese funds that trade in gold, and many young people have taken to collecting small quantities of gold beans.
Online merchants have capitalized on the demand for gold beans, aggressively promoting their sale. Platforms like Alibaba's Taobao, one of China's largest e-commerce platforms, feature merchants selling gold beans through livestreams, providing a blend of the Home Shopping Network and Amazon-like shopping experiences. The beans come in various shapes, such as a peanut or a persimmon, and are marketed as an affordable way to participate in the gold boom. For around $87 per bean, individuals can invest in gold for the price of a hot pot meal.
Kelly Zhong, a teacher in Beijing, began buying gold in 2020 at the start of the pandemic. Besides amassing over 2 pounds of gold bars, Zhong has also invested in gold through exchange-traded funds. Inspired by the saying "Jade in prosperous times, gold in troubled times," as the world became more chaotic, Zhong continued to accumulate gold, confident that its prices would continue to rise. Although she has halted her purchases for now, she sees no reason to sell. The Chinese economy is still struggling, and neither real estate nor stocks appear to be sound investments.
While Beijing has been increasing its gold reserves, gold accounts for only about 4.6% of China's foreign exchange reserves, whereas India holds nearly twice as much of its reserves in gold. The combination of aggressive retail buying by Chinese consumers and central bank purchases has attracted speculators on the Shanghai markets, who are betting on the continuation of this trend. Average trading volume for gold on the Shanghai Futures Exchange more than doubled in April compared to the previous year.
For Xena Lin, buying gold beans is personally satisfying because it feels like indulgent shopping while simultaneously being an investment she can physically touch. She intends to continue purchasing more beans, as she believes that although the price of gold fluctuates, the increase falls within a range she can tolerate, making it acceptable to her.
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