Daishin: In China, Individuals, Not the Government, Are Buying Gold... Additional Liquidity Measures in Focus

It has been analyzed that the recent increase in gold purchases in China is being driven by individuals rather than the government, reflecting a lack of trust in yuan-denominated assets. Experts note that attention should be paid to additional liquidity measures by the Chinese government, such as monetary policy easing, aimed at channeling personal funds into stocks and real estate.

On May 2, Choi Jinyoung, a researcher at Daishin Securities, stated in a report titled "Chinese Individuals' Love for Gold Will Trigger Greater Government Liquidity," that "the main buyers of gold are Chinese individuals, not the Chinese government."

He first pointed out, "The People's Bank of China (PBOC) increased its gold holdings for five consecutive months, purchasing 12.8 tons in the first quarter. Some argue that this is a challenge to the dollar as the key global currency," and added, "However, linking gold purchases by individuals?not the Chinese government?to a challenge against the dollar's reserve status is nonsense." According to Daishin Securities, in April, $7.4 billion (about 70 tons) flowed into Chinese gold exchange-traded funds (ETFs), accounting for more than 50% of global gold ETF inflows. This is 25 times the amount purchased by the PBOC.

Choi explained, "The reason Chinese individuals are buying gold is distrust in the government and in yuan-denominated assets." He continued, "Although the Chinese government claims it can win the tariff war with the United States, the market's assessment is harsh, as shown by the relative performance of the CSI3000 and yuan-denominated gold prices. People are more concerned about worsening export volumes and surplus inventories, and are hedging against the yuan."

He also noted, "There is a lack of confidence in domestic demand stimulus as well." He explained, "At the Communist Party's economic work conference last December, the party leadership promised to actively defend real estate prices to boost domestic demand, but transaction volumes remain stagnant." In addition, consumer sentiment in China is also weak due to the prolonged slump in the real estate market.

Choi stated, "The concentration of personal funds in gold implies that it may be difficult for listed companies to raise funds and for consumption of durable goods related to housing (which accounts for 35% of total consumption) to recover. This is something the Chinese government cannot tolerate." He added, "Therefore, greater stimulus can be expected," mentioning the possibility of a 50 to 100 basis point cut in the reserve requirement ratio and a 10 to 20 basis point cut in the loan prime rate (LPR), as discussed locally.

He emphasized, "The liquidity effect of about 3 trillion yuan corresponds to 53% of the new debt issuance limit (central government special bonds and local government special bonds) set by the Chinese government for this year. This is clearly a strong stimulus." He further noted, "The expanded liquidity could subsequently drive up prices of commodities such as copper, which warrants attention."