China’s Gen Z Gold Rush
The Royal Mint
Category: Invest
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Checked by ,
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Data from the World Gold Council shows that consumer demand for gold in China (in the form of jewellery, coins and bars) rose 16% in 2023, with gold jewellery demand up 12% and bar and coin demand up 27%.[1] Whilst this data is significant in and of itself, it’s the specific dynamics of that demand that may shine a light on what the future holds for gold demand in the world’s largest gold market.
In 2013, as the United States Federal Reserve surprised markets by signalling an end to quantitative easing, the gold price plummeted from $1,790 in October 2012 to $1,203 in June 2013. As is traditionally the case, gold purchasing in Asian markets surged, with many rushing to buy jewellery at lower prices. Middle-aged women in China led the charge. These were women who had grown up witnessing enormous economic and social change in China, and saw the appeal of gold as a safe-haven and store of wealth – particularly as the plummeting gold price was perceived to offer good value for money.
A decade later, and with central banks once again approaching a pivotal moment in monetary policy, it’s the younger generation that is leading China’s new gold rush. Against a backdrop of rising youth unemployment, slumping property prices and government intervention to try and stem a sell-off in the stock market, Gen Z (those born between the mid-1990s and early 2010s) are turning to small gold items as a traditional safe-haven asset and store of wealth.
The news agency Agence France-Presse (AFP) recently spoke to young gold buyers in China to understand what’s driving the gold rush among the country’s Gen Z consumers. They interviewed Feng Ning, a 24-year-old woman working in the medical industry, who told AFP ‘When I started earning my own money [...] I bought other luxury products, but they would depreciate a lot when you wanted to exchange them for cash. My friends (and I) have switched to choosing gold’. Another young, female gold buyer told AFP, ‘It’s hard for young people to save money’ and that by buying gold ‘the money is still with you in a different way’.[2] It’s a familiar story in a culture steeped in gold.
The social media and e-commerce platform, Xiaohongshu, popular among Gen Z and younger Millennials, also appears to be playing a role in the rush to gold among China’s young professionals. Dubbed ‘China’s answer to Instagram’, Xiaohongshu users showcase their golden store of wealth on the platform – often in the form of small ‘gold beans’ that weigh around one gramme each, and are an ideal price point for those on entry-level salaries wishing to buy on a monthly basis.
Among these younger consumers, the trend for buying small gold items as a store of wealth has coincided with ‘guochao’ (‘national wave’ or ‘China chic’) – an emerging fashion for more traditionally Chinese designs, and a renewed interest in Chinese culture. Various news outlets are reporting that jewellers are developing lighter-weight (and therefore cheaper) jewellery with traditional Chinese design elements specifically to appeal to younger consumers. Research by the World Gold Council also found that ‘products lighter than 10 grams, or cheaper than RMB2000 (£220) contributed the most to retail sales’.[3] These items are specifically designed to be an attractive price point for those at the beginning of their careers looking to both invest, and enjoy the allure of physical gold in their hands.
This isn’t a here-today-gone-tomorrow fad. Gold appears to have been growing in popularity among younger Chinese consumers for some time now, but the recent economic context, combined with the Spring Festival ushering in the new Year of the Dragon, seems to have exacerbated the trend. An article published in the Chinese publication Sixth Tone claims reports show that 59% of Gen Z said they were inclined to buy gold in 2021 (up from 16% in 2016), whilst sales of gold jewellery by e-commerce giants Tmall and Taobao are highest among people born after the 1990s.[4]
And it’s not just among young professionals that we’re seeing heavy gold buying in China. Data from the World Gold Council shows that the Chinese central bank added 225 tonnes of gold to their reserves last year, the heaviest buying spree since 1977. The People’s Bank of China now reportedly holds 2,235 tonnes of gold. This represents just over 4% of the People’s Bank of China’s total reserves.
However, this is still relatively low by Western standards; the US and Germany hold almost 70% of their reserves in gold, and the UK holds just over 11%. China’s heavy gold buying may be part of the wider global trend of ‘dedollarisation’, where many nations that are not strategically aligned with the USA appear to be diversifying their reserve assets to reduce their reliance on the US Dollar. The trend has been particularly associated with the BRICS nations (Brazil, Russia, India, China and South Africa) and a number of central Asian states.
As of January 2024, China has increased its gold reserves for 15 consecutive months. Should this trend continue, this could be supportive of the gold price. Taken together, this may be encouraging news for those who want gold prices to increase. Research by the World Gold Council found that 29% of Emerging Market and Developing Economy central banks planned to increase their gold reserves over the following 12 months – and the Covid-19 pandemic appears to have marked a significant change in policy, pre-pandemic just 11% of EMDE banks surveyed planned to increase their gold reserves.[5]
If Gen Z’s appetite for gold remains with them as they age, we may see larger gold purchases in line with the higher salaries associated with career progression. Heavy central bank buying may aid prices further if it continues at elevated levels. In a note published by Metals Focus on 28 February, the precious metals research company said, ‘Looking ahead, we expect that this healthy appetite for gold among Chinese consumers will continue throughout much of this year’.
Sources
[2] - https://www.youtube.com/watch?v=DNudz5SdxAA
[4] - https://www.sixthtone.com/news/1013975
[5] - https://www.gold.org/goldhub/data/2023-central-bank-gold-reserves-survey
Notes
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