Increase more than 200 per cent in value during time when average price of bullion rose nine per cent
China’s demand for gold has risen in the past few years, helping to usher in record-breaking prices and a growing trade relationship with Canada for the shiny metal.
In the past, interest rates in the United States and flows into or out of gold-backed exchange-traded funds (ETFs) were used by many analysts as a quick way to predict the direction of the gold price. In recent years, though, U.S. interest rates rose and gold-backed ETF holdings contracted, which should have softened gold prices, but the price of bullion reached all-time highs, currently at US$2,371 per ounce.
He said gold demand from China and central banks accounted for 85 per cent of mine supply through the first three months of 2024 and 70 per cent on average during the prior two years. That’s up from 25 per cent during the three-year period from 2019 to 2021.
That shift in demand is evident in Canada’s gold exports to China, which have steadily risen to $589 million in 2023 from $189 million in 2020, according to Statistics Canada data.
That is more than a 200 per cent increase in value during a time period when the average price of gold rose nine per cent to US$1,940.50 in 2023 from US$1,769.6 per ounce in 2020, according to World Gold Council data.
Vic Fedeli, Ontario’s minister of economic development, said precious metals now represent his province’s largest export to China.
Nonetheless, the rising gold trade with China comes as trade relations between the two countries come under pressure. Deputy Prime Minister Chrystia Freeland on July 2 launched a 30-day consultation on whether Canada should impose tariffs on Chinese-made electric vehicles and other issues. She has accused China of flouting international trade rules by deliberately creating an oversupply of EVs.
That has led to some speculation about whether China may attempt to retaliate if Canada does launch tariffs on EVs or any other product.
There is a twist, though: Canada has only exported $175,000 of gold to China through May of this year.
“I think it’s definitely been something that we’ve seen, and is definitely a key component for the Canadian mining market,” Joe Cavatoni, senior market strategist at the World Gold Council, said about the rising gold exports to China.
The World Gold Council estimates that the People’s Bank of China ramped up its purchases of gold beginning in late 2022. It added a record 225 tonnes of gold to its reserves in 2023, up from 62 tonnes the previous year.
Some analysts think China’s central bank’s growing purchases of gold is a geopolitical reaction. After Russia invaded Ukraine, the U.S. and its allies froze billions of dollars of Russian assets, and analysts have said they believe China views gold as a way to gain protection against the U.S. and any other country that could freeze its assets.
Consumers and investors in China have also been ramping up their spending on gold.
“There has been this perception that central banks are the only buyers in town, but the reality is that the retail buying in both gold and silver has been buoyant as well, especially out of China,” Shree Kargutkar, a senior portfolio manager at Sprott Asset Management LP, said.
He said Chinese investors may be turning to gold as their country’s real estate market experiences a downturn or even to escape equity market volatility.
In any case, Kargutkar said Shanghai gold exchange data shows that buyers there are paying large premiums to the spot price, as much as US$22 to US$30 per ounce in recent months compared to US$7 to US$10 per ounce in past years.
“The bottom line is there has been a marked change in the Chinese consumer as far as gold and silver go; they’re paying up for it,” he said.