China’s Central Bank Demand Drives Gold Price throughout 2024

A good friend of mine mentioned that CNBC’s website featured a positive article on gold on its front headlines page on May 27th, wondering if one of Wall Street’s public relations outlets had turned bullish on the precious metals. 

It’s a valid question. However, the article was authored by a strategist from Australia’s ANZ Bank, who attributed the price rise in metals to «weakness in the U.S. dollar» and «retreating U.S. Treasury yields.»  

Currently, the dollar index is 1.8% below where it was trading at the beginning of May, but 4% above trading levels at the beginning of 2024. The 10-year Treasury yield is considerably higher now than at the beginning of the year (4.55% now vs 3.87% then). The entire yield curve from the 2-year Treasury out to the 30-year Treasury has been trending higher since the beginning of the year. 

Moreover, the Fed is not expected to lower the Fed funds rate until later this year – if at all.

Chinese Central Bank Gold Buying

Based on the available data, and recall that China only reports gold import data that flows through Hong Kong but not Beijing or Shanghai, China has been importing a massive amount of gold this year. 

Eastern hemisphere gold buying, particularly from China, appears to be the force driving gold and silver prices higher currently. 

It’s a given that the Chinese Central Bank is buying a lot of gold currently, and likely more than it officially reports, in its effort to diversify its reserves out of U.S. dollars and into other forms of money. 

On top of that, the Chinese public is buying gold at a rate that is twice the amount of domestic gold mine production. According to the China Gold Association, consumers in China bought 308.9 tonnes (10.9 million ounces) of gold in Q1 2024. Chinese gold mines produced 139.1 tonnes of gold in Q1. 53.2 tonnes of that was a product of imported gold ore. 

In addition, according to the World Gold Council – and we know it is unable to track all of the gold imported by China – Central Banks globally bought a record 290 tonnes of gold worth $24 billion in Q1 2024. Note that the ten central banks reporting an increase in gold reserves are based in the Eastern Hemisphere:

Source: Metals Focus, World Gold Council and Refinitiv GFMS

The graph above is for Q1. In addition, in April India imported $3.11 billion worth of gold vs $1.01 billion in April 2023. Given that a record amount of physical gold is being accumulated in the East right now, it’s clear to me that the demand for physical gold is the biggest factor in driving the gold price higher.

Silver supply & demand 

The same analysis applies to silver. The Silver Institute is forecasting a 219 million-ounce supply deficit in 2024. However, with the sharp rise in the gold price, it appears that the Indians have shifted from buying gold to gorging on silver. In Q1 2024, India imported 3,730 tonnes of silver, which exceeded the amount imported for the full year 2023. That rate is running about 50% higher than the all-time high of 9,450 in 2022. (source: Manisha Gupta, CNBCTV18 news editor – commodities & currencies).

Silver imports into China do not get reported other than silver concentrate. But it is thought that China buys and uses more silver than is produced domestically. The Chinese Government has been working on a massive nationwide solar energy installation program which uses most of the silver produced annually by the mining industry. 

Data from the Shanghai Gold Exchange shows that silver withdrawals YTD through the end of April were up 16.6% YoY. The demand is coming from manufacturers and banks. Current premiums for silver daily have been running about 10% above the world spot price of silver, which reflects the continued strong demand for silver in China.

While the Western media appear to misunderstand the factors driving gold and silver higher, an examination of the demand for both metals in the Eastern hemisphere leads to the conclusion that an enormous amount of physical buying from Central Banks, industrial users and the general public is likely by far the biggest factor in both driving gold to all-time highs and also triggering a technical breakout of silver than are any macroeconomic factors in the U.S.