China’s public and private sector purchases continue to drive gold prices – Nieuwenhuijs

(Kitco News) – China remains firmly in control of the price action in the global gold market, and the latest data indicates that trend is likely to continue, while Western investors are likely to join the precious metals party soon, according to the latest analysis Gainesville Coins released on Wednesday Jan Nieuwenhuijs.

Nieuwenhuijs pointed out that the Chinese private sector imported 543 tons of gold in the first quarter of 2024, and the People’s Bank of China (PBoC) added another 189 tons to its reserves in the same period. However, “most purchases made by PBoC are ‘unreported,'” he warned.

“China continues to be a marginal buyer in the gold market, which drives up the price. I expect China to remain a solid buyer of gold going forward, which will support the price.

In his previous analysis published in March, Nieuwenhuijs explained how China has broken the long-standing correlation between the dollar-denominated gold price and real yield to become a “driving force for the gold price” from 2022 onwards.

“The data I had was for the period up to December 2023, so I was hesitant to conclude that the sharp increase in the gold price since late February was also caused by the Chinese,” he said. “However, with the release of new data, I can confidently say that China started the current bull market.”

“The media is aware that as of 2022, central banks have largely been purchasing gold in secret (often referred to as ‘unreported’ purchases),” he said. “It is now widely known that the World Gold Council (WGC) publishes a single quarterly statistic on central bank aggregate purchases that is significantly higher than the sum of purchases of all monetary authorities combined.”

The problem, Nieuwenhuijs said, is that it is unclear which central banks are responsible for this discrepancy, which has widened significantly since Russia’s invasion of Ukraine.

Field research by the World Gold Council indicates that central banks purchased 290 tonnes of gold in the first quarter of 2024. “Most of the difference – I use eighty percent – ​​between the WGC estimate and the total purchases disclosed by the IMF is 162 tonnes,” he wrote “If we add what the PBoC report bought during this period, total purchases amount to 189 tons, 38% more than in the previous quarter. PBoC may have had a hand in the price increase since the end of February.”

Nieuwenhuijs provided the chart below showing its own estimates of PBoC reported and unreported gold purchases by quarter.

“Based on unreported purchases, according to my research, China’s central bank currently holds gold reserves of 5,542 tons,” he said.

Turning to private demand, Nieuwenhuijs said net imports of gold by China’s private sector are extremely high. “From January to March, imports amounted to a whopping 543 tonnes, an increase of 74% compared to the fourth quarter of 2023.” – he said. “This has certainly caused the price of gold to increase. Imports in April dropped slightly to 125 tons.”

Nieuwenhuijs noted that Hong Kong has seen significant net gold inflows in recent months, which “mainly reflects strong demand in China,” he said.

“In the first quarter, the UK and Switzerland were net exporters and stocks of Western ETFs declined,” he said. “As of this writing, the West has not yet joined the bull market that has its roots primarily in China.”

Nieuwenhuijs referred to a recent report that Beijing sold a record $53 billion of U.S. treasury and agency bonds in the first quarter of this year, which he said “illustrates that the PBoC is selling dollars for gold” with total reserves China’s currency of $3.2 trillion. “Plenty of firepower left for gold.”

He also expects demand for gold from China’s private sector to remain high, given the continuing real estate crisis on the mainland, which has sent home prices tumbling in 30 of the past 33 months.

“The State Council presents a plan to buy unsold houses through local governments, but they are already drowning in debt,” he said. “The Chinese public, which does not have many investment opportunities due to capital controls, will continue to invest in gold and support the price.”

Nieuwenhuijs predicts that the West will finally join the gold bull market in a short time. “The outflow of ETF funds appears to have stopped and it would be logical for Western investors to switch to gold at some point due to high asset valuations and overconfidence in credit instruments,” he said.

Gold prices fell following strong price action last week, with a steady decline on Thursday. Spot gold last traded at $2,332.12, down almost 2% on the day