China’s appetite for gold remains strong, with UBS analysts analyzing the underlying sentiment and trends driving the country’s gold market dynamics. Despite some caveats, gold sentiment in China is overwhelmingly bullish, reflecting a positive outlook tempered by caution.
A recent UBS trip to China showed prevailing optimism for gold, albeit with concerns about rapidly rising gold prices and disruption to macro correlations. Market participants in China, like their global counterparts, are interested in the reasons for the recent surge in gold buying activity.
In the short term, the consensus among Chinese investors is that any drop in gold prices should be viewed as a buying opportunity. While expectations remain optimistic for gold prices in the medium to long term, many expect a period of consolidation in the near future. This pause could revive physical demand, which has recently taken a step back, and allow speculative interest to recalibrate.
Interestingly, UBS noted relatively muted price growth expectations among Chinese market participants compared to participants in other regions. This cautious approach is partly due to doubts about a potential rate cut by the Federal Reserve, given the strength of US economic data.
Despite the cautious sentiment, China’s gold imports remained stable in the first quarter despite a 10% rise in gold prices denominated in Chinese yuan. However, gold purchases by central banks have fallen markedly, with China’s official gold purchases in the first quarter falling significantly compared to the same period last year. This trend continued into April, indicating a potential decline in overall official gold purchases.
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