China: demand for bars and coins at record levels again

For the second year in a row, China has seen record growth in demand for investment gold. This has cemented its position as the world's largest gold market.

It seems that demand for gold in China is back on track for growth. According to the latest report by the World Gold Council, demand for gold bars and coins last year amounted to 306.4 tons, which represents an 8% increase over the previous period and the second consecutive record result in this market. Demand for gold jewelry rose by 3% to 646.9 tons. This is the first positive result since 2013.

A decline was observed in supply. According to preliminary estimates, it amounted to 9%. Interestingly, this is only the second decline since 1980. It is mainly due to stricter environmental regulations, which led to the closure of many of the oldest mines. However, this fact did not affect China's first place in the ranking of the world's largest gold producers.

There are many indications that this year will also end with increases. Chinese demand for gold is supported not only by centuries-old tradition, but also by current economic conditions.

At the end of January, Chinese media circulated a statement by the former Chinese finance minister, one of the authors of economic reforms in the 1980s. Lou Jiwei, currently president of the National Social Security Fund, warned that the risk of a crash on the Chinese market is greater than in the US before the 2007 crisis. In his opinion, the financial sector in China is in "disarray." Among the most significant threats, he mentioned the effects of many years of increasing money supply. Artificial acceleration of economic growth has led to an extremely dangerous increase in the M2* index. It has exceeded 200%, which means that it is twice as high as it was 11 years ago in the US.

* The M2 indicator refers to the amount of money in circulation on the domestic market.

Another factor that may have a positive impact on the gold market in China is the local authorities' policy against cryptocurrencies. For some time now, we have been observing the government's growing distrust of this investment, which is all the rage in the West. In September last year, China closed its domestic cryptocurrency exchanges. The beginning of this year brought further restrictions in this area. Financial institutions were completely banned from conducting activities related to cryptocurrency trading. This means that banks can no longer act as intermediaries in transactions involving the purchase or sale of, for example, bitcoins. In this way, China wants to protect its economy from the chaos that could be caused by a sudden collapse of the cryptocurrency market.

Without a doubt, gold remains an unrivaled form of security not only for Chinese citizens, but also for the Chinese government, which has kept the expansion of state gold reserves secret for years.