Why the China Gold craze may be about to begin?

Affected by U.S. President Trump's tariff threats, escalating trade wars, and inflation concerns, gold prices continued to hit new highs on Monday, breaking the critical $2,900 mark for the first time.

Analysts say that the Chinese gold futures market is showing strong upward momentum after the holiday, combined with safe-haven demand triggered by the uncertainty of Trump's policies, making it only a matter of time before gold prices see a resurgence similar to last year's surge. Moreover, the next phase of this gold bull market could be even more astonishing than the rise expected in 2024.

On Monday, spot gold prices rose by 1.66%, closing at $2,907.97, with an intraday high of $2,911.44, a historical record. In recent years, gold prices have continued to rise due to market concerns over the impact of Trump's policies. Since the end of 2024, gold prices have increased by more than 10%, having closed at $2,623 at the end of last year.

Last Year's Gold Rush May Recur This Year

Financial media ZeroHedge reported that the current gold bull market began in the spring of 2024, primarily driven by traders on the Shanghai Futures Exchange, while Western investors largely remain on the sidelines. In just six weeks from March to April, these traders pushed gold prices up by $400, a rise of 23%—an extremely rare increase for gold.

Although trading activity in China has cooled since then, Chinese traders have re-entered the market after the recently concluded Spring Festival holiday; meanwhile, the gold market had already begun to heat up in their absence.

Data shows that gold futures on the Shanghai Futures Exchange were the main driving force behind the gold surge in the spring of 2024, and this upward momentum subsequently spread to international gold prices.

A notable article in the Financial Times at the time, titled "Chinese Speculators Propel Gold Surge," detailed the situation:

"Trading volume of gold futures on the Shanghai Futures Exchange surged by 400%, driving gold prices to a historic high."

This spring's gold trading frenzy in China can also be clearly seen from the long position chart of gold futures on the Shanghai Futures Exchange.

Over the past year, gold futures on the Shanghai Futures Exchange have generally moved in sync with international gold prices and entered a consolidation phase from the end of October last year to January this year. However, as the Chinese market reopened after the Spring Festival holiday, Shanghai gold futures prices gapped higher, quickly catching up with the rise in international gold prices This breakthrough indicates strong upward momentum, suggesting that larger gains may occur in the future.

This consolidation and breakout trend can also be observed in the international gold spot price denominated in RMB, further confirming the bullish trend of gold.

ZeroHedge believes that all key factors are in place for another gold rush led by China, and it may just be a matter of time. Data shows that the trading volume of gold futures on the Shanghai Futures Exchange is still relatively low, but if the upward trend accelerates, trading volume could increase significantly, which would be a key confirmation signal for the market to enter a frenzy mode.

Additionally, whether there is a premium for domestic gold prices compared to international prices is also a point of concern. During the gold rush in the spring of 2024, domestic gold prices in China were about $50 higher than international gold prices. Currently, that premium is almost zero, but if the premium reappears and expands rapidly, it could mean that Chinese demand is once again becoming the main driving force behind rising gold prices.

Therefore, ZeroHedge believes that all signs indicate that the gold market may replicate the explosive trend of spring 2024, and the next phase of this gold bull market could be even more astonishing than the rise in 2024.

Central Bank's Increased Purchasing Willingness

China's gold demand data has fluctuated over the past period, but investor demand for gold bars and coins remains stable. Additionally, the holdings of exchange-traded funds (ETFs) linked to gold have reached a historical high.

Media reports indicate that the People's Bank of China, as another important buyer, is also continuously supporting market sentiment. Data shows that after a six-month pause, the People's Bank of China resumed official gold purchases in November last year and continued to increase its holdings in January this year.

Goldman Sachs believes that the timing of the People's Bank of China's gold purchases may be related to supporting factors for the RMB. Daan Struyven, co-head of Goldman Sachs' global commodities research, stated:

"The central bank may want to convey a confidence signal to the market regarding the renminbi, indicating that there are rising and sustained high gold reserves backing it."

In addition, ZeroHedge points out that global central bank demand for gold may become even greater.

At the same time, the "large-scale stimulus policies" that the Chinese government may introduce will become a strong driving force for gold, silver, and other commodities.

Trump's Tariff Threat Continues to Fuel Gold's Rise

Media reports indicate that the Trump administration's rise has further boosted international gold prices, as investors seek safe havens in response to the potentially confrontational foreign policy of the new U.S. government, which includes the possibility of trade wars and inflation, increasing safe-haven demand. This year, gold has set a historical high seven times.

Marex analyst Edward Meir stated:

"Clearly, the tariff war is the main driving force behind the rise in gold; it reflects the uncertainty and escalating tensions in the global trade situation."

Last Sunday, Trump announced plans to impose an additional 25% tariff on all steel and aluminum imports and stated that he would announce reciprocal tariffs this week, matching the tax rates of other countries and implementing them immediately.

Tariffs may exacerbate inflationary pressures in the U.S., and investors are closely watching the upcoming U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) data to be released this week.

Meir noted that if the CPI and PPI data come in below expectations, it could weaken the dollar and push up gold prices; if the data exceeds expectations, it could raise U.S. bond yields, putting some pressure on gold. However, due to the market's resilience and strong buying interest, the impact may be relatively mild.

Additionally, Federal Reserve Chairman Jerome Powell will testify before the U.S. Congress on Tuesday and Wednesday.

Phillip Streible, chief market strategist at Blue Line Futures, stated that since last December, gold prices have shown a 45-degree upward trend, which could create a self-fulfilling prophecy, further driving gold prices higher, with target prices potentially raised to $3,250 or $3,500.

ZeroHedge also believes that gold still has room for further increases before reaching around the $3,000 level.