China’s People’s Bank Continues Gold Purchases. Will We See $3,000?

Gold has a serious chance of reaching a record value at the beginning of the week, supported by the double effect of Donald Trump’s latest tariff strike and continuing purchases from the People’s Bank of China (PBOC).

As a safe asset, gold may attract strong interest in the face of the broader consequences of Trump’s increasingly aggressive trade policy, although many details remain unclear. The latest targets are reciprocal tariffs on countries that impose taxes on imports from the U.S.

On Friday, the People’s Bank of China announced that it had increased its gold reserves for the third consecutive month in January. This means that Beijing added to its stock of the precious metal in the same month that Trump took office, while gold prices saw a monthly increase of nearly 7%.
Chinese gold buyers are forced to wait as prices near $3,000.
Demand for gold bars and coins remains steady, but jewelry sales have plummeted.
The Shanghai premium has turned into a discount, signaling weak demand.
The stunning rise in gold to nearly $3,000 per ounce threatens to leave Chinese buyers behind.
Growth in the precious metal over the past year has been fueled by strong demand in China, but record prices, a weak economy, and additional costs imposed by the stronger dollar have made purchases unaffordable for many consumers in the world’s largest gold market.

International gold prices surged significantly under Donald Trump’s presidency, as investors sought a safe haven from the potential consequences of his more confrontational foreign policy. This includes the prospect of a trade war with Beijing, which strengthened the dollar and made gold even more expensive for Chinese buyers.

“There is an affordability issue,” says Philip Klapwyk, managing director at Hong Kong-based consultancy Precious Metals Insights Ltd. “Moreover, the overall economic uncertainty means consumers are unable to spend as they used to.”

If Chinese buyers were more active, prices might have risen even more, notes Klapwyk. Instead, the usual increase in demand ahead of the Lunar New Year was weaker than usual, which somewhat cooled the overheated market.

Data on Chinese demand shows volatility, although there are positive trends. Investment in gold bars and coins remains stable due to stock market instability and the ongoing housing sector crisis. But the main part of demand, linked to jewelry sales, has shrunk significantly amid the economic slowdown.

“Local savers may prefer the simplicity and relative transparency of gold,” said Nicholas Frappel, global head of institutional markets at ABC Refinery in Sydney. “But I don’t expect anything grand due to household constraints.”

Meanwhile, wholesale traders are pulling less than usual from stock exchanges. “People are cutting back on their spending,” said Feni Zen, founder of Royer Jewelry in Shenzhen. “More people are opting for smaller jewelry with better designs.”

As a major importer, Chinese gold buyers often have to pay a higher price to secure bars. But the so-called Shanghai premium has actually turned into a discount for most of the past six months, indicating weak demand for physical gold as prices continue to rise. Paper investments, however, are a different story, with gold-backed exchange-traded funds reaching record levels.

And there is another major buyer that continues to support market sentiment, despite — or perhaps because of — the weakness of the yuan. After a six-month hiatus, the People’s Bank of China resumed gold purchases in November, while continuing to diversify its reserves, adding more in January, according to the latest data from Friday.

Goldman Sachs Group Inc. sees support for the yuan during the People’s Bank of China’s purchases. “The central bank may want to send a signal to the market about confidence in the currency,” said Daan Stuyven, co-head of global commodity research at Goldman Sachs. “It wants to show that the currency is backed by growing and high gold reserves.”