Even in modern times, gold has remained a valuable metal. As the world has changed almost every way, it seems almost charmingly archaic that we still value the yellow metal.
This affinity for gold is reserved for traditionalist countries and modern 21st-century states like China. The demand for gold in China has continued to grow, showing no sign of stopping.
The country boasts a massive economy and population, and its preference for metal stems from multiple factors such as currency rates, lifestyle, and government policies.
Let’s take a look at China’s relationship with gold:
Why gold?
Almost all human cultures that have even existed agree that gold is valuable. But why is that?
Of course, it is pretty to look at, but there must be more than just beauty. And there is.
First, it should be mentioned that gold does not rust.
Oxidation is when oxygen binds to another element and affects its composition. It happens to almost everything, including our bodies.
This is why apples turn brown if you expose their inside to air, which is why you keep hearing the word “antioxidant” when discussing food. Oxygen, an element associated with life, is attacking almost everything it comes in contact with.
Meanwhile, gold does not rust at all, not reacting to atmospheric oxygen. It has not broken down for thousands of years, which has inspired most human cultures to consider it divine and sacred. In addition to that property, its color is the color of the Sun, which further adds to the mystique.
In terms of composition, gold is dense and heavy but also very brittle and malleable. Depending on the thickness, you can bend it with your hand. Because it never rusts and is easy to shape, gold was an ideal candidate for making coins and minting currency.
China’s preference for gold
While gold is universally perceived as valuable, certain cultures prefer gold more than others. China seems to be oriented towards gold more than other countries, as the demand keeps growing.
There are multiple economic factors influencing gold prices, but one of the most important is stability.
Inflation
Inflation usually occurs when too much money is chasing after a limited amount of goods.
During the recent COVID pandemic, governments across the world made their citizens stay home, and many jobs were deemed non-essential. As a result, the people who were made to stay home still needed money to live.
Thus, governments printed a lot of money to pay the people. The problem is that the money didn’t represent actual labor, so the value of each banknote decreased. Trust in national currencies plummeted, and people wanted something that was inflation-proof.
Gold and crypto currencies promise not to be dependent on political policy, so they are highly sought-after. Gold is seen as inflation-proof.
Many economists agree that, in many ways, the gold standard was better, as there was actual value backing up the currency. You cannot make more gold and tank the market, so it is naturally scarce.
Gold IRA investing in China and the rest of the world is seen as an insurance policy against the whims of the global market.
The Yuan’s value vs the dollar has been fluctuating lately, which has further increased citizens’ interest in purchasing the precious metal.
The investment trends in the Chinese gold market are obvious, as major investors are once again turning to purchasing gold as a hedge against inflation and the dropping value of the yuan.
In the future, the opposite may be true in case inflation goes down and the Yuan rises in value. However, gold will never be worth 0 dollars per gram, regardless of the global economy.
Cultural
We have already established that gold is perceived as perennially valuable. Thus, for thousands of years, owning gold has been seen as a sign of wealth and success. This is deeply buried in the collective perception of all cultures, and China is no exception.
This is not a new trend, as gold has had a rich history in China. It has been used for ceremonial purposes since long before the modern age began. It is also useful as a gift and as a fashion accessory.
Since the 1970s, the average purchasing power of the Chinese citizen has climbed. It is probably the most notable increase in living standards in history. It is an economic miracle where hundreds of millions of people suddenly have disposable income.
As a result, more and more people can afford to buy gold not just as an investment but as a statement of fashion and success.
More and more Chinese citizens are purchasing gold and jewelry not just for its utilitarian value but also for aesthetic value and social signaling. As a result, the increase in demand is not only from people buying dozens of kilos as a wealth storage method but also from the countless millions purchasing a single bracelet, ring, or chain.
Gold has always been an integral part of Chinese New Year celebrations and even wedding ceremonies.
China is not unique in its affinity for gold in any way, but what makes it stand out is its size and the overall purchasing power of its population.
It’s not all organic
Until now, we’ve mostly covered how the organic demand for gold has grown out of necessity, culture, and financial instability. However, as it is with anything related to China, its government also plays a large role.
The government sets most of the market dynamics of gold in China.
Most of the current supply is not mined or refined domestically, so gold is actually an imported good. As is the case with any nation, imported goods are much more regulated, monitored, and taxed.
The government in China has relaxed its policies related to the ownership of gold for a while now, and it shows.
Without this blessing from up top, ownership would not be anywhere near where it is today.
In addition, we have the “Belt and Road” program, which encourages international investment, and gold is often included in that strategy.
Interest rates
Depending on the current interest rates, gold can be an attractive option for investors. You cannot understand the Market Dynamics of Gold in China without first understanding that the price is intrinsically tied to low or negative interest rates.
Gold does not generate dividends or interest.
Conclusion
In a way, gold was the original crypto-currency thousands of years before we had Bitcoin. The supply is limited, the material lasts forever, and it is a good way to store wealth. It brings both actual comfort to investors and the psychological comfort of owning something that is not very volatile.
Everyone wants something that is inflation-proof.
Of course, gold also looks pretty and has religious, spiritual, and symbolic value in every culture across the globe.
The Chinese market and people are well-justified in their interest in this material.