【Epoch Times, February 23, 2025】
China’s mainland economy continues to decline, attributed to insufficient demand and weak consumption. However, recently, there has been a frenzy of buying gold in China, causing gold prices to soar. According to the quotation from the Central Bank of the Chinese Communist Party, the spot price of gold in China was 687 yuan/gram on February 20, when converted to US dollars, slightly higher than the international gold price. Why has the price of gold been continuously rising in recent years? Can gold truly combat inflation? Is it possible for the world to return to a gold standard financial system in the future?
Independent TV producer Li Jun mentioned in the New Tang Dynasty’s “Elite Forum” program that after the Chinese New Year, some major cities such as Beijing, Shanghai, Hangzhou, and Xi’an experienced a wave of gold buying. Videos showed people lining up in front of gold shops in Beijing as early as 4 a.m., mainly middle-aged women. When the shop door opened, a large number of people rushed in to make purchases. It is said that major gold companies and several banks have run out of stock.
Li Jun mentioned that since the Chinese New Year, the momentum of gold in China has been very rapid, continuously breaking historical records. The domestic gold price reached a high point of 692 yuan/gram on February 12. The listed price for gold jewelry of the brand Chow Tai Fook has reached 886 yuan/gram. In 2024, gold reached a 40-year high, with a price increase of 27.87%. Just over a month after the 2025 New Year, it rose by 12.7%. The Central Bank of the Chinese Communist Party started buying gold in November last year, which also triggered this wave of frenzy buying.
Economist Li Hengqing mentioned in the “Elite Forum” that Chinese people buying gold is not due to concerns about inflation. Currently, the actual situation in China should be in a state of deflation, where prices are not only not changing but possibly decreasing. This is because China’s economic development has reached a bottleneck, a period of decline. The supply exceeds demand overall, so prices of goods, including commodities, are declining in general.
Li Hengqing stated that there are several reasons for Chinese people to buy gold. Currently, there are very few investment opportunities in China, which is crucial. In the past two to three decades, real estate was a booming industry for investment in China. Everyone believed that buying a house today would lead to wealth tomorrow, hence investing heavily in the housing market. As a result, the real estate market collapsed over two years, leaving all related investments in ruins. Investing in the stock market had some peaks, but since the Chinese stock market is known for being a trap, investors were mostly deceived. Therefore, with very limited investment opportunities now, using gold as an investment is currently considered a better option, drawing many to participate.
Li Hengqing added that another important aspect of buying gold is asset preservation. The value of the Chinese yuan can depreciate or become obsolete at any time. Other assets denominated in yuan also face these problems. Stocks, bonds, and various assets involve risks. Looking at the stability of gold prices in recent years, especially after the pandemic, many believe that buying gold now can at least preserve value and avoid situations like losing money on a house purchase. Therefore, asset preservation is a major consideration in buying gold.
Li Hengqing emphasized that the significant rise in international gold prices is likely related to the massive issuance of currency by various countries during the pandemic period. When more currency is issued, the value and purchasing power of the currency decline. Hence, as a hedge against this, many countries are considering investing in gold to maintain value. However, in recent years, different countries have various reasons for their demand for gold. For example, in Europe, due to the high energy prices since the Russia-Ukraine conflict, the inflation rate has been rising. Therefore, under such circumstances, using gold as an investment tool becomes an option.
Li Jun stated in the “Elite Forum” that a global frenzy to buy gold has been ongoing since November 2024. In December, global central banks bought over 100 tons of gold in a month, exceeding 1000 tons of net gold purchases for three consecutive years. In 2020, global central banks only purchased 254 tons of gold in a year, which has now multiplied. Therefore, this buying frenzy has likely been initiated by global central banks for the past three years.
Since Donald Trump’s victory in the US in November last year, the US has also started purchasing large amounts of gold. Since December 2024, Switzerland’s gold exports to the US surged to 64.5 tons, an 11-fold increase since November; during the same period, Switzerland’s gold exports to London sharply rose to 14.3 tons, a 14-fold increase from the previous month. This indicates that Swiss gold is flowing to the US through direct and indirect channels. The US holds the world’s largest gold reserves, exceeding 8,000 tons.
Li Jun mentioned that India, known for its fondness for buying gold, had a trade deficit of $37.8 billion in November last year, with gold imports reaching $14.8 billion, accounting for 40% of the trade deficit. It is said that private gold reserves in India amount to 20,000 tons.
Veteran media figure Guo Jun stated in the “Elite Forum” that there is approximately 210,000 tons of gold in the world, with a significant amount mined by various countries since the 1950s. Around one-fifth of this gold is held in reserves by central banks worldwide.
Guo Jun explained that for China, international gold purchases serve two main purposes: reserve and consumption. The significance of reserves is evident as the scarcity of gold causes its price to increase along with economic growth and wealth accumulation. Before the departure of gold from the US dollar in 1971, gold was priced at $35 per ounce, whereas today it is approximately $2940, an 84-fold increase. In comparison, the S&P 500 index was around 96 points in February 1971 and is now at 6200 points, a 65-fold increase. Therefore, gold outperforms the stock market.
Moreover, the topic of gold consumption is crucial, particularly in China. Chinese people prefer pure gold, while foreigners tend to prefer gold with diamonds or gemstone inlays, commonly known as K gold. In China, private gold possession was nearly nonexistent before the Open Door Policy due to a law enacted in 1954 by the Communist Party, designating all gold and silver as strategic commodities to be sold to the state. It wasn’t until 1988, amid severe inflation, that Beijing began selling gold in large quantities to obtain cash in yuan. Hence, the shortage of gold among the Chinese public increased significantly following economic growth, although the supply has continuously fallen behind the demand.
Senior editor and columnist Shi Shan from Epoch Times mentioned in the “Elite Forum” that historically, gold was widely utilized as money worldwide, and stable gold standard monetary systems were developed, particularly by the British in the 1850s. After the gold standard tied to the pound was abandoned, it led to economic turbulence. Following World War II, the West adopted the gold standard where the US dollar was linked to gold. However, in 1971, the US dollar also detached from gold. The world is now once again in a state of turmoil.
Guo Jun stated in the “Elite Forum” that if widespread chaos occurs in the future, particularly if the complete decline of US hegemony happens, can the world revert to the gold standard? This is questionable; however, the extent of the chaos determines the possibility. Currently, most central bank gold reserves are held in the US, and if everyone ceases cooperation during upheaval, written records or computer data would lose meaning.
Nevertheless, if international chaos occurs, the safest place would still be the US. Therefore, people would prefer to store their wealth, including gold, in the US, which could actually further reinforce the dollar’s status, removing the need for a return to the gold standard.
Guo Jun added that a trend is emerging where Bitcoin could also become a tool for storing wealth and value. Bitcoin’s advantage over gold is not relying on US supremacy. As a result, some countries are beginning to consider using Bitcoin as a reserve asset, including the US. Thus, it is likely that in accordance with current trends, digital currencies similar to Bitcoin could arise as a tool for storing wealth. Therefore, a coexistence of various assets such as gold, digital currencies, among others, in wealth preservation could be the future.
Li Hengqing mentioned in the “Elite Forum” that gold continues to serve as an investment tool. After the detachment of the US dollar from gold, countries worldwide anchor their wealth on the dollar, a fundamental consideration in international trade today.
However, several nations, including members of the BRICS group, have considered establishing a BRICS currency. Especially countries like Russia and China, which have direct geopolitical conflicts with the US, are eager to explore this possibility, only to face opposition from former US President Donald Trump, warning against such action. Accordingly, many quickly expressed their disinterest, claiming they never considered it.
Though the US dollar remains the primary means of global trade and wealth anchoring, gold also serves this role, yet it is not used as a transaction tool.
Li Hengqing stated that he has doubts about whether Bitcoin or other cryptocurrencies could become an investment or wealth storage tool similar to gold. Wealth storage tools generally require relatively stable values, with some fluctuations but within the tolerance of investors. If there are extreme fluctuations, such as Bitcoin’s volatility reaching peaks rapidly, becoming unstable with price fluctuations, making it less likely to become a wealth storage medium. It is often regarded as a gambling opportunity. Hence, from a historical perspective, investing in gold or precious metals remains the most stable option.
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