Gold Prices Likely to Remain Flat Due to Chinese Regulations and US Rate Cuts

Chinese Authorities Tighten Controls on Gold Purchases via Credit Card Cash Advances and Loans
US Fed Rate Cuts Drive Increased Preference for Risk Assets

Since mid-April, international gold prices have remained stuck within a narrow range. Although gold’s year-to-date return still exceeds 30%, outperforming both the S&P 500 and the S&P GSCI Commodity Index, prices have failed to climb further since May. On the 29th, Daishin Securities released a report titled "Evidence of Rising Chinese Stocks and Gold Trading Regulations in Effect," analyzing that strong personal gold purchase regulations in China, along with expected interest rate cuts by the US Federal Reserve, will likely keep gold prices from rising further for the time being.

Chinese Government Cracks Down on Personal Gold Hoarding

The main factor holding back gold prices lies in China. Chinese individuals drove the gold price rally from the end of 2023. As recently as April this year, 53% of global net gold spot ETF purchases were attributed to China. However, the trend reversed starting in May. According to the World Gold Council (WGC), there has been a confirmed outflow of funds from Chinese gold spot ETFs.

In May, Chinese authorities, concerned about personal funds flowing not into stocks or real estate but solely into gold-which generates no added value-strengthened crackdowns on ▲ gold purchases via credit card cash advances and ▲ gold buying through unsecured loans. With Bitcoin trading already blocked and gold purchases becoming more difficult, some Chinese personal funds shifted into the stock market.

Global Liquidity Expansion Weakens Demand for Safe-Haven Assets

The US Federal Reserve is expected to cut interest rates after September. As a result, we are now in a phase of global liquidity expansion. When liquidity increases, risk assets such as growth stocks tend to be favored over traditional safe-haven assets like gold. In August 2020, when liquidity surged rapidly, the S&P 500 responded accordingly, while gold prices actually came under downward pressure.

Until recently, global liquidity expanded everywhere except the US. Since the beginning of the year, China and the EU have injected $6.5 trillion, accounting for 76% of new global liquidity. Meanwhile, the US has released only $0.4 trillion. Now, however, the US is preparing to join the liquidity party through interest rate cuts. Choi Jinyoung, an analyst at Daishin Securities, commented, "This is a market where risk assets are favored over traditional safe-haven assets like gold," adding, "This does not mean a pessimistic outlook for gold in the long term, but based on past experience, we recommend employing medium- to short-term strategies based on liquidity."