China seems to have lost some of its appetite for gold last month, with demand from both investors and the central bank falling as seasonal factors combined with surging prices to temper demand for the precious metal.
China-bound shipments of gold for non-monetary use fell 30% in April from the previous month, customs data showed this week. While April is traditionally a period of weak bullion demand in China, the decline comes amid a run of record prices.
The drop also follows months of Chinese consumers and investors hungrily snapping up gold bars and coins, as a protracted property downturn and a volatile stock market sparks a flight to safety. Consumption of the haven asset in China rose nearly 6% from a year earlier in the first quarter, official data show.
Analysts say sustained demand from China, the world's biggest gold producer and consumer, is boosting the price rally. Market expectations for the start of rate cuts by the Federal Reserve--which are anticipated to kick off monetary easing cycles elsewhere--have added further fuel. Prices of the non-interest-bearing metal tend to move inversely to rates.
Growing geopolitical tensions are another factor feeding appetite for haven assets, pushing gold to a stretch of record highs above $2,400 an ounce this year. The yellow metal hit $2,450 an ounce Monday, following the news of the death of Iranian President Ebrahim Raisi in a helicopter crash.
Analysts say the rally might have dented the Chinese central bank's demand for gold to use as reserves. Like its global peers, the People's Bank of China has been topping up its gold holdings, having made purchases for 18 consecutive months. However, the PBOC only bought 60,000 troy ounces in April, down from the 160,000 and 390,000 ounces seen in March and February respectively.
It remains to be seen if the April decline in China demand will be a blip, as the rally in gold shows no signs of stopping yet.
Geopolitical tensions remain relatively high, Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said in a note, citing war in Ukraine and in the Middle East, trade friction between China and the West, and the uncertainty spurred by the death of Iran's president.
Trend and momentum indicators remain supportive of a further rise in gold, she said, pegging the $2,500 per ounce psychological mark as the next natural target for the gold bulls. Gold was last trading around $2,416.
"For those who wonder whether the gold rally could extend, the answer is yes, it could," she said.
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(END) Dow Jones Newswires
05-21-24 0451ET
