China Public Now Buying Gold Like Crazy

(January 26, 2024 - Mike Gleason)

As superficially upbeat economic data propels the stock market to new highs, precious metals investors are questioning the story being told by Wall Street cheerleaders and government bureaucrats.

On Thursday, the Bureau of Economic Analysis announced its Gross Domestic Product estimate for the fourth quarter. It beat expectations, with GDP growth coming in at 3.3%.

The gains came largely as a result of seasonal bumps in inventories and exports, which are not expected to be sustained. GDP growth is almost certain to come in much lower in the first quarter of this year. It could even start to trend negative later in 2024.

Alternative measures of the economy’s performance captured by the Leading Economic Index are already turning down. The LEI fell in December, pointing to underlying weakness.

Also of concern, the number of American workers applying for first-time unemployment benefits is rising.

Nevertheless, the talk on Wall Street is of a soft landing. The mainstream financial media is touting a so-called “Goldilocks” economy now that official inflation rates have come down.

Clip #1: After two years of surging inflation, are we going back to a Goldilocks economy?

Clip #2: It's an economy that is cooling on the inflation front, but still showing growth on the spending front, the Goldilocks...

Clip #3: Perfect Goldilocks scenario.

Clip #4: We're getting some of that Goldilocks.

Clip #5: It is Goldilocks.

Clip #6: This is Goldilocks.

With bullish sentiment running rampant, the investing public is largely ignoring precious metals as potential safe havens. Softening demand for bullion has caused premiums to shrink and contributed to price weakness so far in 2024.

The gold market had entered the year very close to all-time highs. Despite pulling back, support at the $2,000 level has held.

As of this Friday recording, the monetary metal checks in at $2,027 per ounce – off 0.6% for the week. The silver market shows a small weekly gain of 0.5% to bring spot prices to $22.94 an ounce.

The good news for silver stackers is that premiums on silver coins, bars, and rounds have come down to attractively low levels, making the all-in cost of accumulating various retail forms of the "poor man's gold" the lowest it's been since early last year.

Platinum prices are erasing losses from earlier in this week with a little rally here today and now shows a 1.2% gain for the week to trade at $925. And finally, palladium is acting similarly and is now putting in a 1.0% advance this week to come in at $996 per ounce.

Although gold and other precious metals are largely being overlooked by U.S. investors at the moment, that’s not the case in other parts of the world. In fact, the gold market is booming in places like China.

The Chinese stock market and currency have both plummeted in value over the past several months. But gold prices have hit record highs in terms of the Chinese yuan.

China is now the world’s biggest retail buyer of gold. And Chinese households are increasingly turning to gold bullion and jewelry for wealth protection. China's jewelry purchases rose 8% last year, according to the China Gold Association.

Meanwhile, demand for gold coins jumped nearly 16% in 2023. Chinese gold-backed exchange-traded products added 10 tons to their holdings. And the People’s Bank of China increased its gold reserves by a whopping 225 tons.

The PBOC has also implemented measures to make it easier for bank account depositors to convert cash into gold. Chinese officials may be viewing gold as a geopolitical tool amid rising tensions with the United States.

The U.S. dollar is steadily losing market share in terms of global central bank currency reserves while gold is gaining.

It’s not ultimately China or Russia or other U.S. adversaries that pose the biggest threat to U.S. dollar hegemony. It’s reckless U.S. fiscal and monetary policy that is undermining global confidence in its currency.

Credit ratings agencies Standard and Poor’s and Fitch have downgraded U.S. debt amid a skyrocketing budget deficit and constant budget brinksmanship in Washington, D.C.

Many investors nevertheless believe that the U.S. economy, the stock market, the banking system, and the currency are all on fundamentally sound footing. But if their Goldilocks scenarios fail to pan out, they could be left wishing they had diversified into actual gold instead.