China is buying a lot of gold. UBS explains why

China’s appetite for gold remains robust, with UBS analysts analyzing the underlying sentiments and trends driving the country’s gold market dynamics. Despite some reservations, sentiment towards gold in China is predominantly bullish, reflecting a positive outlook tempered by cautiousness.

UBS’s recent trip to China unveiled a prevailing optimism towards gold, albeit with concerns about the rapid ascent of gold prices and the breakdown of macro correlations. Market participants in China, much like their global counterparts, are curious about the origins of the recent surge in gold buying activity.

In the near term, there’s a consensus among Chinese investors that any dips in gold prices should be viewed as buying opportunities. While expectations remain optimistic for gold prices in the medium to long term, many anticipate a period of consolidation in the near term. This pause could reinvigorate physical demand, which has recently taken a step back, and provide a chance for speculative interest to recalibrate.

Interestingly, UBS observed relatively restrained upside price expectations among Chinese market participants compared to those in other regions. This cautious approach is attributed partly to doubts about potential rate cuts by the Federal Reserve, given the resilience of US economic data.

Despite the cautious sentiment, China’s Q1 gold imports remained robust, defying the 10% rally in gold prices denominated in Chinese Yuan. However, central bank purchases of gold saw a notable decline, with China’s official gold purchases in Q1 falling significantly compared to the same period last year. This trend continued into April, indicating a potential easing in overall official sector gold purchases.