Why China Is the Secret to the Next Leg of the Gold Boom
The comments below are an edited and abridged synopsis of an article by Brian Tycango
Most Asian baby boomers and Generation Xers can relate to ‘big family syndrome,’ which comes in handy for investors—and not because of connections. It gave Tycango incredible insight into the gold market.
As one of the youngest in his family, he saw many older cousins grow up and get married, and there’s one thing that stands out in his memory: How much gold there was. A Chinese wedding without gold-gifting just doesn’t happen.
It’s a long-held tradition for grooms to present their parents-in-law with gifts of gold. It signifies welcoming a new member into the groom’s family. Lately, these gift-giving ceremonies have become more like showcases of wealth. That’s especially true in China, where close to 10 million couples get married every year.
This army of gold-buyers has almost single-handedly turned China into the world’s largest gold-consuming nation.
The Covid-19 crisis threw a wrench into the works, though. Getting married at a time when you can’t even have large gatherings—something synonymous with Chinese weddings—is a total deal-breaker. It’s no surprise that demand for gold jewelry in China fell as a result.
In the first quarter of 2020, demand fell 65% year over year. The next quarter, even as the country emerged from lockdown, gold jewelry demand was down 33% year over year.
Here’s the crazy part, though: Gold prices soared to all-time highs even as Chinese demand fell.
Things are nearly back to normal in China, however, and that means gold demand should rocket higher. And it will likely cause the next leg higher for gold.