Long one of the biggest international players in the bullion market, China consumers ramped up its gold consumption by more than half. China is now the world’s leading market for physical bullion, which represents the ultimate safe haven asset. With ever-increasing questions in the global economy, Chinese gold demand sees no case for let up.
According to Bloomberg, ” Sales climbed 51 percent to 158.40 metric tons from a year earlier, the China Gold Association said in a press statement sent via Wechat on Friday. Overall gold consumption climbed almost 10 percent to 545.2 tons, including 330.8 tons for jewelry sales, while industrial demand and other uses increased 9 percent.”
The central reason why Chinese gold buyers have rushed to the relative safe haven of bullion is the rapid depreciation of the yuan. While a weak currency makes that particular nation’s exports comparatively attractive in the international markets, it’s terrible from a consumer economy perspective. In addition, gold is viewed as a safe haven against a volatile stock market and deceleration in real estate prices.
China has always been a step ahead when it comes to adopting sound, economic principles. For example, Chinese gold reserves moved higher while other nations sold off their positions. Data from the International Monetary Fund demonstrates that without Chinese gold demand, international gold reserves would have declined since the summer of 2014.
Evidently, China is the only nation that is propping up the bullion markets. But is the Asian giant’s gold reserves enough to save the precious metals?
The yellow metal is enjoying a robust month so far, with average gold prices up 4.6% since the close of July 3. Unfortunately, the problem is that this year, bullish rallies have always encountered quick and fierce resistance. If this present rally is unable to breach the $1,300 psychological barrier, we could see more slow trading in the months ahead.
The other major challenge is that gold’s accompanying precious metals, namely silver and platinum, have performed poorly. Silver has been stuck inside a decidedly bearish trend channel since mid-April, while platinum is firmly below the critical $1,000 level. None of this makes much logical sense considering the rush to safe haven investments.
While I would like to believe that Chinese gold demand in the consumer markets, and the increased procurement in gold reserves, will catalyze a fresh leg higher, we also have to be cognizant of the present trading environment. Since multiple professional investors have taken losses in the precious metals, as bullion prices rise, sell orders will automatically trigger future downsides.
I’m not 100% certain that these orders have been fully flushed out. To stay conservative, I will assume technical resistance until the metals start picking up in their traditional strong season around October and November.