Chinese Articles on the Price of Gold

Chinese WeChat Articles 11/9/2024

This platform is devoted to summarizing Chinese WeChat articles for English readers to understand better what is happening with the Chinese economy. I currently have two aims:

A) Is Western news getting the full picture correct about China’s economic problems?

B) Are Chinese and foreign commentators criticizing Western media for neglecting the growth in second and third-tier cities correct?

Following the US election, gold fell a bit from its rally. However, it has rebounded a little and China restarted its buying spree at the end of last week. Let’s check out some of the most popular WeChat articles on the topic of Gold from the past month.

黄金大变局：卖不动的金项链，抢不够的金条

The Great Gold Shift: Unsellable Gold Necklaces, Insatiable Demand for Gold Bars

This article begins by mentioning the words of Li Xunlei from four years ago: "The rise in gold prices is like an active volcano; once it erupts, the increase is not just a few percentage points but several times."

Li Xunlei is the Chief Economist at Zhongtai International.

Actually, an article of his was recently translated by the Substack The East is Read.

The article continues to review recent happenings with gold and China. Gold has been on a rally over the past few years, which led to Chinese going out to purchase gold at stores like Chow Tai Fook. Today, many of these stores are facing problems due to the price of gold keeping customers away. Chinese consumers would rather spend their money on meals, especially given that the weight of the gold items on offer has been reduced. This has resulted in stores reducing the number of days they are open.

The price of gold and the lack of demand for purchases has affected factories in China too, especially Shuibei in the southern city of Shenzhen. Factories have laid off workers. In fact, Chow Tai Fook’s Shenzhen factory has been shut down and been relocated to nearby Shunde.

The author points out, however, that people have not stopped purchasing gold jewelry. The total value of overall purchases has remained the same. Instead, the weight of the gold being sold has been reduced.

The World Gold Council's Q3 2024 Global Gold Demand Trends report revealed that in Q3 2024, gold jewelry demand in the Chinese market reached 103 tons. While this marked a slight quarter-on-quarter rebound, the combined effects of high gold prices and economic factors caused a 34% year-on-year decline, making it the weakest Q3 for gold jewelry demand since 2010. In the first three quarters of 2024, China's gold jewelry demand fell 23% year-on-year to 373 tons. Globally, gold jewelry consumption dropped 12% year-on-year to 459 tons.

Another economist mentioned is Jia Shuchang, the head of China research at the World Gold Council. According to Shuchang, although people believed gold was at incredible levels earlier this year, its price has continued to increase due to geopolitical risks.

Western investors, who had been net sellers of gold in the past, have returned. Jia Shuchang noted that North American and European gold ETF buyers are primarily institutional investors. This shift is due to expectations of Federal Reserve rate cuts and declining global central bank rates, which lower the opportunity cost of holding gold. Geopolitical risks also remain a significant driver of gold ETF inflows.

Meanwhile, China has returned to purchasing gold in an attempt to diversify away from the dollar, although it remains the world’s largest producer of gold and therefore has less to worry about. Some analysts believe gold will continue to rise, even hitting $2,900 per ounce by the end of 2025. Chinese analysts believe this will occur due to increasing geopolitical uncertainty, a weakening dollar, and declining real interest rates. One of them is Li Xunlei, who has been calling for growth in gold purchases since 2016. However, he cautions Chinese investors to only allocate 20% of their overall portfolio to gold.

Wang Lixin, the chief executive officer of the World Gold Council China, has told investors to not treat gold like short-term stocks. Instead, gold should be seen as a defensive move to reduce asset risk.

Finally, the article addresses the overall trend of incorporating gold more by pointing out the actions of asset management firms recently:

More asset management firms are incorporating gold to lower volatility and balance risk and reward. Over 190 "gold+" financial products have emerged, including funds of funds (FOFs), bank products, and brokerage products, with the category continuing to expand. Investors can use these to appreciate gold's role in asset allocation.

金价大跳水，黄金牛市结束了吗？

Gold Prices Plunge: Is the Gold Bull Market Over?

Note that this article is almost a month old. I want to include it to see what Chinese writers were saying when we saw the drop post-US election.

This article basically repeats the argument that gold fell due to the election of Trump. Investors believe that his administration will lead to an increase in inflation and a rebound in the dollar’s price, especially once the fed begins cutting rates once more. This inflation will be caused by Trump’s tax cuts and tariffs. The author highlights Former U.S. Treasury Secretary Summers’ comments that inflation under Trump may be worse than in 2021.

Nevertheless, this article is still hesitant about the future. Trump may not go through with every policy he campaigned on. It argues that because inflation was a key topic for the American public, they may push back against Trump to prevent him from pushing policies that will make inflation worse. Still, it points out that gold may continue to rise due to people worldwide losing faith in the dollar. The rise in American debt is only one reason for this crisis.

The current gold bull market is primarily due to the decline in the dollar's super-currency status. Global investors are increasingly disillusioned with the dollar. So, the future direction of gold will depend on whether the dollar can regain its former super-currency status. Trump won the election with the slogan "Make America Great Again." If Trump can strengthen the dollar again, it would mean the end of this gold bull market. On the other hand, if Trump accelerates U.S. debt expansion, gold may still have the chance to shine again.

Translator’s Note: This article places too much trust in the power of voters. Many people voted against Trump out of worry that his policies would make inflation worse. The article argues that if Trump is elected, he is likely to implement policies, such as large tax cuts and significant increases in tariffs, which could drive inflation up in the U.S. This would lead to expectations that the Federal Reserve would have less room to lower interest rates, thus reducing the demand for gold as an investment.

In essence, the argument is that with inflation rising under Trump's potential policies, the dollar could strengthen because investors would expect the Fed to curb inflation through measures that support the dollar, which would make gold less attractive as a hedge against inflation. As a result, gold prices could decrease.

However, what if Trump’s policies lead to hyperinflation? In the case of hyperinflation, gold would likely increase in value. This is because gold is often seen as a safe haven and a store of value during periods of extreme inflation or economic instability. When inflation spirals out of control, the purchasing power of the currency decreases, and investors typically turn to assets like gold, which are perceived to retain their value better than fiat currencies.

However, in the article's context, the expectation is that Trump's policies, like tax cuts and higher tariffs, might lead to a more moderate rise in inflation rather than hyperinflation. This could cause the Federal Reserve to act in ways that support the dollar, which might reduce demand for gold in the short term. So, the argument is not that inflation won't lead to gold's increase, but rather that it won't reach the levels that would trigger hyperinflation and massive gold price surges.

Let’s see if that happens…

跌成这样，黄金崩不住了

Falling like this, gold can't hold up anymore.

Here is a third opinion, also from last month. It seems to hold a more negative outlook for gold.

This article says similar things to the last two: gold stores in China are facing issues and Trump’s election have caused gold to drop. However, it also points out that people think Trump will be able to end geopolitical tensions like Russia and that his open arms towards crypto will lead investors away from gold. Based on this, the author believes gold’s rise is unlikely to continue. It also argues this given historical trends, though it may rise gradually instead of following the dramatic rise of the past few years.

Translator’s Note: The problem with this argument is that it focuses on Russia, not China. Russia’s invasion is certainly an issue causing uncertainty, but if China continues to build relationships with other countries and seek to get away from the dollar, uncertainty is bound to continue. However, I do like this article highlighting crypto. This could be one answer to the US seeking leverage over China and inflation, particularly as China and BRICS look to gold and the US-China trade war continues to get worse.