China’s gold consumption rose 6% in first quarter this year; what is driving the rally?

Gold, which is considered as a secured investment amid geopolitical and economic upheavals, has witnessed a significant surge in value due to Russia's invasion of Ukraine and the conflict in the Gaza Strip. However, the prolonged and resilient ascent of gold, surpassing $2,400 per ounce, can be largely attributed to China.

According to the China Gold Association, gold consumption in the country saw a 6% rise in the first quarter compared to the same period last year. This growth follows a 9% increase recorded in the preceding year.

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According reports, Chinese consumers have increasingly turned to gold amid waning confidence in conventional investment avenues such as real estate or stocks. Concurrently, the nation's central bank has consistently bolstered its gold reserves while reducing its holdings of U.S. debt. Adding to this trend are Chinese speculators, who are wagering on further potential appreciation, intensifying market dynamics.

China's significant influence in gold markets has been evident for some time. However, its impact has become even more noticeable during the recent bull run, which has seen a nearly 50% surge in the global price since late 2022. Despite conditions that typically diminish gold's attractiveness as an investment, such as higher interest rates and a robust U.S. dollar, China has continued to reach new peaks in its dominance of the market.

In the previous month, gold prices surged despite the Federal Reserve's indication of maintaining higher interest rates for an extended period. Furthermore, its appreciation has persisted despite the strengthening of the dollar against nearly all major currencies globally this year. 

Although prices have retraced to approximately $2,300 per ounce, there's an emerging belief that economic factors no longer solely dictate the gold market, with Chinese buyers and investors' preferences playing a significant role.

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"China is unquestionably driving the price of gold. The flow of gold to China has gone from solid to an absolute torrent," Ross Norman, CEO of MetalsDaily.com, was quoted as saying by The Economic Times.

As conventional investment options lost their appeal, gold investment emerged as a more attractive prospect. China's real estate sector, traditionally a primary destination for household savings, continues to grapple with crisis. Confidence among investors in the country's stock markets is yet to fully recover. Several major investment funds targeting affluent individuals collapsed following unsuccessful ventures into real estate.