Among central banks, there is one player that seems to buy gold regardless of whether its price is high or not. That player is China. Why are they doing this? Last week, gold once again broke records, significantly exceeding the price of $2,400 per ounce.
– The price of the metal is heavily dependent on the global geopolitical situation, and at the moment, gold is primarily reacting to events in the Middle East. We will see whether the exchange of “punches” between Iran and Israel will close the matter or lead to further escalation and a situation that spirals out of control. This strongly influences what happens in the markets, not only affecting the price of gold but also the price of oil and the value of currencies – comments Michał Tekliński, a gold market expert at Goldsaver.pl.
Central banks still buying gold
The most important players in the gold market remain the central banks, which continue to buy a lot of the metal.
– On the other hand, there is no particular movement on the consumer side. Of course, there is growing interest among individual customers, but these are not yet the levels we saw in 2020, 2021, or even 2022. The consumer market still has much less momentum than it did then. Also, on the institutional side, including ETFs, we do not observe stronger interest. Movement is visible only among central banks – Tekliński notes.
What are the Chinese planning?
However, central banks also buy gold at different paces.
– But there is one player who seems to buy the metal regardless of whether its price is high or not. That is China. Why do they do it? One can speculate, but it is worth remembering that the Middle Kingdom has its reserves largely deposited in the US dollar, a bit in the euro, and also in gold. And China is currently grappling with internal problems, with demographics or the real estate market. All this causes them not to develop as quickly as before – explains the Goldsaver.pl expert.
In such situations, authoritarian states often look for an external enemy to blame for what is happening internally.
– And here comes the issue of Taiwan. If China decided to take a stronger step towards taking control over it, they could base it on the Western reaction when Russia, after invading Ukraine, was cut off from Western money through the confiscation of reserves. Hypothetically, a similar situation could now occur, and China’s currency reserves might prove to be worth little – explains Michał Tekliński.
Gold will never go bankrupt
And what then would be worth a lot?
– Gold, as an alternative to these currencies. Of course, I hope that such a scenario will not be written, but it is important to remember that gold is a solid hedge for many situations, will always be valuable, and will never go bankrupt. It’s worth keeping this in mind when thinking about what’s happening in the world and analyzing the geopolitical situation, but also considering your own portfolios and how you want to secure yourself against situations we cannot predict – concludes the Goldsaver expert.
