China has given domestic and international banks permission to import large amounts of gold into the country. This could potentially support global gold prices after months of declines.
China is the world’s biggest gold consumer, gobbling up hundreds of tonnes of precious metal worth tens of billions of dollars each year. Its imports plunged as the coronavirus spread and local demand dried up.
With China’s economy rebounding strongly since the second half of last year, demand for gold jewelry, bars, and coins has recovered, driving domestic prices above global benchmark rates and making it profitable to import bullion.
The local premium is now about $7 to $9 an ounce, according to gold traders in Asia, and would probably have increased further if more imports to satisfy demand had not been allowed.
About 150 tonnes of gold worth $8.5 billion at current prices is likely to be shipped following the green light from Beijing, set to arrive in April and May.
The bulk of China’s gold imports typically comes from Australia, South Africa, and Switzerland.
The People’s Bank of China or PBOC, the country’s central bank, controls how much gold enters China through a system of quotas given to commercial banks. It usually allows metal in but sometimes restricts flows.
According to the Chinese customs data, the size of the shipments signals China’s dramatic return to the global bullion market. Since February 2020, the country has on average imported gold worth about $600 million a month.
In 2019, its imports ran at about $3.5 billion a month, or roughly 75 tonnes.
China’s absence made little difference to gold prices early in the pandemic. Western investors were so scared of the economic catastrophe stockpiled vast amounts of the safe-haven asset. But the investors are starting to relax.
India’s demand for bullion has also rebounded from a pandemic-induced slump, with record-breaking imports in March of 160 tonnes of gold according to Reuters.
China and India typically account for some two-fifths of the world’s annual demand for gold. Their recovery is critical in the value of gold.
Jewelry sales in China during the Lunar New Year holiday in February were stronger than in 2019 and 2020.
The dip in the price of gold has discouraged many investors from buying. But it really should be the other way around. This is when you should be buying.
As of recording, gold has been between $1700 and $1800. This is way below the $2000 all-time high.
The return demand from China and India will put gold in a better position… and then there are the industrial demands starting to pour in.
Don’t wait until it breaks another ceiling before you invest. Do it now.