Forex Trading Library

Can the Chinese New Year Impact The Price of Gold?

0 793

The short answer is, yes. The Chinese Lunar New Year routinely has an effect on the price of gold.

But just as important is why, and what that means for people who are interested in trading the precious metal.

So how much of an effect is it? And can we expect the effect to keep happening?

China’s Gold Obsession

It’s not surprising that the most populous country in the world would be a large consumer of any given product.

But gold is a special case in China, even more than the second-largest importer of gold, India. There are traditional, historic and simple practical reasons for this.

Let’s get an idea of scale. China produces over a third of the world’s gold, but even so is still the largest importer.

This isn’t just the government and financial institutions building reserves, but Chinese citizens are the largest holders of gold on a per capita basis.

Join our responsible trading community - Open your Orbex account now! 

It’s More than a Tradition

There is a long tradition of saving in China, but at the same time significant distrust of official currency.

Seeking safe places to store value has given rise to the demand for foreign investments, and fueled the housing market. But the most practical way to store value is to buy gold. And Chinese people who can afford to will put a sizable portion of their savings into jewelry or simple bullion.

The first recorded instance of paper money is from China, which also implies the longest history of worrying about the value of fiat currencies.

With tight government control over currency, which is subject to political control, gold also offers an alternative for freer exchange.

The Special Date

The Lunar New Year is a week-long holiday period in which the Chinese will meet with relatives, and exchange gifts. By far the most popular gift is some form of gold.

In anticipation of this demand, gold prices in the entire world can start rising in the months leading up to the Lunar New Year, as Chinese firms build inventory.

As China has increased in wealth thanks to its booming economy, millions of Chinese are now able to afford gold, and the consequent demand for what is, in the end, a finite resource, has skyrocketed.

The Future

With the Chinese economy continuing to grow and the reasons to want gold not likely to go away, it’s likely that the Lunar New Year will continue to be a significant factor in the price of gold going forward, possibly increasing the effect on the market.

China’s notorious lack of transparency makes it hard to know exactly how much gold is held by Chinese citizens.

Another event that overlaps with the demand for gold from China is the start of the wedding season in India. Indian weddings are characterized by gold being used as a sign of wealth.

The building of inventory for these events also starts along with the Lunar New Year, with both combining to make the start of the year a good time to have gold in your portfolio.

[optin-monster-shortcode id=”br9d5szjejc7bancki3f”]

Leave A Reply

Your email address will not be published.