An increase of more than 200 percent in value while the average price of bullion increased by nine percent
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China’s demand for gold has soared in recent years, helping to fuel record prices and a growing trade relationship with Canada for the shiny metal.
In the past, interest rates in the United States and flows into or out of gold-backed exchange-traded funds (ETFs) were used by many analysts as a quick way to predict the direction of gold prices. However, in recent years, US interest rates have risen and holdings of gold-backed ETFs have contracted, which should have reduced the price of gold, but the price of gold reached an all-time high, currently at US$2,371 per ounce.
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“Gold’s bellwether relationship with U.S. real interest rates has deteriorated significantly over the past two years, with gold reaching all-time highs despite high real rates,” Max Layton, head of global commodity research at Citigroup Inc., said in a recent note on gold prices.
He said gold demand from China and the central bank accounted for 85 percent of mine supply in the first three months of 2024 and an average of 70 percent over the past two years. That’s up from 25 percent over the three years from 2019 to 2021.
The shift in demand is reflected in Canada’s gold exports to China, which are expected to rise steadily to $589 million in 2023 from $189 million in 2020, according to Statistics Canada data.
That is more than 200 percent increase in value during the period of time The average price of gold rose nine percent to US$1,940.50 in 2023 from US$1,769.6 per ounce in 2020, according to World Gold Council data.
Vic Fedeli, Ontario’s economic development minister, said precious metals are now the province’s biggest export to China.
However, gold trade increased with China as trade relations between the two countries came under pressure. Deputy Prime Minister Chrystia Freeland on July 2 launched a 30-day consultation on whether Canada should impose tariffs on Chinese-made electric vehicles and other issues. They accused China of violating international trade rules by deliberately creating a surplus of EVs.
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This has led to some speculation about whether China might try to retaliate if Canada launches tariffs on EVs or other products.
But there’s a twist: Canada only exported $175,000 worth of gold to China through May of this year.
Of course, gold remains a small part of Canada’s $38.3 billion in exports to China, overshadowed by canola, coal and other products.
“I think it’s definitely something that we’ve seen, and it’s definitely a key component for the Canadian mining market,” Joe Cavatoni, senior market strategist at the World Gold Council, said about rising gold exports to China.
The World Gold Council estimates that the People’s Bank of China will increase its gold purchases from the end of 2022. It will add a record 225 tonnes of gold to its reserves in 2023, up from 62 tonnes the previous year.
Until April, the highest gold reserve was 2,260 tons. accounted for 4.9 percent of foreign reserves, the highest.
Some analysts think the Chinese central bank’s gold buying is a geopolitical reaction. After Russia invaded Ukraine, the US and its allies freed up billions of dollars in Russian assets, and analysts say they believe China sees gold as a way to gain protection against the US and other countries that may freeze its assets.
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Consumers and investors in China have also increased their spending on gold.
“There is a perception that central banks are the only buyers in town, but the reality is that retail buying in gold and silver is also good, especially from China,” said Shree Kargutkar, senior portfolio manager at Sprott. Asset Management LP, said.
He said Chinese investors could turn to gold as their country’s real estate market slumps or even escape equity market volatility.
In any case, Kargutkar said data from the Shanghai gold exchange showed that buyers paid a large premium for the spot price, reaching US$22 to US$30 an ounce last month compared to US$7 to US$10 an ounce in last year.
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“The following is a clear change in Chinese consumers to gold and silver; they pay up for it,” he said.
• Email: gfriedman@postmedia.com
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