China’s gold markets under strain as horde of new buyers hunts for stable investment

April has been a busy month for the Hualin International Jewelry Market in Guangzhou. A scrum of eager buyers has descended upon the venue, looking to join a new gold rush as prices soar and the precious metal takes on new life as a vehicle for investment.

The Guangzhou market, originally known for its bustling jade and jewellery trade, has been “flooded” with newly opened gold stores, with dozens emerging according to a store owner earlier this week.

“The number of customers is also increasing day by day,” said the owner, who asked not to be identified by name. “Sometimes it feels like a crowded wet market.”

Rapid price changes have made for a mercurial scene. “From the beginning of the year until now, there have been customers buying gold bars for tens of thousands, hundreds of thousands of yuan,” he said. “But since the current price is extremely high, consumers are becoming cautious. Most of the new customers are buying products with lower grams.”

According to another merchant, many have begun to sell their stock.

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Chinese consumers sell off old jewellery amid record high gold prices

Chinese consumers sell off old jewellery amid record high gold prices

“Today’s buy-back price is 554 yuan (US$77) per gram,” the merchant said. “Just now, a lady who got married last year sold me the gifts she received at her wedding, including necklaces, pendants and bracelets.”

The People’s Bank of China, the country’s central bank, bought 160,000 ounces of bullion in March to bring its total reserves to 72.74 million ounces – its 17th consecutive monthly purchase according to official data – as the nation seeks to diversify its holdings away from US bonds amid frayed bilateral ties.

China is also intensifying its search for more stockpiles of the valuable substance. China News Service reported on April 7 that a large deposit was discovered in the Qaidam Basin in the northwestern province of Qinghai, providing a trove of 43.2 tons valued at over 20 billion yuan (US$2.8 billion).

Gold prices have been hitting historic highs in markets around the world. In New York, the price of gold futures contracts for delivery in June hit an all-time high of US$2,384.5 per ounce on Tuesday.

Some owners of gold or its derivatives are following the market closely, prepared to cash out at any moment.

“I started buying paper gold at around 300 yuan per gram and have been holding it until now,” said Li Yue, a Guangzhou-based investor. “People started to hoard gold out of concerns over a lack of access to manage their wealth and an excess in money supply.”

Paper gold is an instrument for investors who are interested in buying and selling the metal under preset contractual terms. It does not involve physical delivery of the metal itself.

“But I am still a bit hesitant [to cash out].”