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Gold frenzy sweeps China as trading volume skyrockets 400%

Gold frenzy sweeps China as trading volume skyrockets 400%

The recent surge in gold prices has sparked a frenzy in China, with trading volumes of the precious metal skyrocketing to remarkable heights.

In April 2024, gold, known for its historical role as a savings instrument in the country, saw an astounding 400% increase in trading volume compared to the average witnessed in 2023, according to data from The Kobeissi Letter shared on April 24.

The epicenter of this surge lies within the Shanghai Futures Exchange (SFE), where gold trading activity reached a staggering 1.3 million lots on the peak trading day of the previous week.

China gold trading volume chart. Source: Bloomberg

This surge in trading activity coincided with a historic milestone in gold pricing. The precious metal exceeded a record-breaking $2,400 per ounce amid escalating geopolitical tensions in the Middle East.

Drivers of China’s gold interest

Notably, beyond the surging value of gold, the metal continues to be among the leading commodities appreciated by consumers in the country. Therefore, the increased trading activity on the SHFE suggests heightened retail speculation amid currency pressures.

China’s enthusiasm for gold has been steadily building, highlighted by substantial acquisitions made by the country’s central bank in the preceding year. According to a Finbold report, in 2023, China’s gold reserves increased by over 225 tonnes, aligning with the central bank’s consistent efforts to bolster its gold holdings for 17 consecutive months.

The country’s strategic push to diversify its reserves away from traditional currencies may further fuel the surge in gold acquisitions.

It remains to be seen if this heightened trading activity will persist. Notably, institutional and retail traders on the SHFE may buy gold to speculate on short-term fluctuations in the yuan.

What next for gold? 

Despite a short-term correction in gold prices, the enduring interest in the metal seems to anticipate a scenario of higher-for-longer US interest rates to counter inflation, potentially tipping the economy into recession. There is a growing conviction that interest rates will not decrease anytime soon, a factor that could be negative for other assets but not for gold.

Finally, with gold trading slightly above the $2,300 mark, a section of the market still believes that the metal’s long-term bullish sentiment is intact, and the current prices present an excellent opportunity to enter.

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