China’s Growing Gold Frenzy

China’s central bank has grabbed headlines with its aggressive gold purchases that have helped drive the gold price well above $2,000 an ounce. But it’s not just the People’s Bank of China that has pushed up the price of the precious metal. Chinese speculators are also aggressively betting on gold.

Trading in gold futures has exploded at the Shanghai Futures Exchange (SHFE), with volume nearly tripling in April, relative to the prior 12 months. A record long position on gold—bets that the price of gold futures would rise—was hit in mid-April, with nearly 325,000 open contracts. One trading firm held bullish gold futures contracts valued at nearly $4 billion, equivalent to 50 metric tons of gold.

“Emerging market participants have wrested the drivers of gold from western traders,” said John Reade, Chief Market Strategist of the World Gold Council.

Gold has always held special appeal in China, the world’s largest market for the precious metal, but today gold is also a safe haven from the country’s plummeting real estate values and its anemic stock market.

The increase in Chinese gold speculation helps explain why gold has soared in 2024 in the fact of two traditional barriers to price appreciation—gradually rising market interest rates and a strengthening U.S. dollar.

“This makes the recent divergence of gold from its historical anchors of the U.S. dollar and Fed funds expectations more understandable and may mean gold market observers will have to pay attention to additional factors to divine gold’s prospects,” said Reade.