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- šØš³ Let's Thank China for the Rising Gold Prices!
šØš³ Let's Thank China for the Rising Gold Prices!
The Big 3 Numbers | Thanking China | Reader's Spotlight
Madhu, Altcase
June 04, 2024
Welcome to the first edition of Altsights, your weekly dose of investing insights designed to help you build wealth.
Altcaseās first curated asset is all set for launch towards the end of June. Thank you for waiting so patiently. I promise the wait will be worth it!
In the meantime, stay informed with our weekly investing insights. Thereās quite a bit to talk about so letās dive straight in!
All that glitters may not be gold, but when gold glitters it's definitely time to hold.
Here's What's in Store for You Today:
The Big 3ļøā£ Numbers
8.2
India's provisional GDP growth rate for FY24 has been revised upward to 8.2%, up from the earlier estimate of 7.6%. Yet again, India is the fastest-growing large economy in the world.
2.1
The RBI has approved ā¹2.1 lakh crore dividend payout (highest ever!) to govt for FY24 compared to ā¹87,416 crore in the previous year.
100
The RBI transferred 100 metric tons of gold from the UK to domestic vaults. This move aims to mitigate the risks of overseas storage amid geopolitical tensions and signals confidence in India's robust economic state and policies.
While we're on the topic of gold, there's a lot of golden action happening worldwide, especially in China. Let's dive deeper in our next section šš¼
Own Gold? Thank China! šØš³
Gold prices have been skyrocketing since the beginning of 2024. In just the past three months, gold has surged by an impressive 14.9%. For context, gold prices climbed by 15% over the entire year of 2023.
So, what's behind this rapid surge?
While many factors such as inflation, geopolitics, and rising interest rates are at play, letās talk about the elephant dragon in the roomāChina.
China's Gold Buying Spree
China's central bank, the People's Bank of China (PBoC), has been steadily increasing its gold reserves. Here is how we know this:
The PBoC has been buying gold for 18 months.
In 2024 alone, China added 29 tons of gold to its reserves.
Gold is now 4.9% of the PBoC's total foreign reserves, the highest ever (see below).
China's US Treasuries Selling Spree
On the other hand, China's holdings of US Treasuries (AKA US govt bonds) have been gradually decreasing, reflecting a strategic shift in foreign reserve management.
Beijing sold $53.3 billion worth of US bonds in the first 3 months of 2024.
China's treasury holdings have decreased from $1.1 trillion to $775 billion in the last ~3 years (see below).
If we connect the dots, it is easy to see that China is hoarding gold to reduce its reliance on the US dollar.
By building up its gold reserves, China aims to protect its financial system from potential risks since gold has intrinsic value and isnāt affected by geopolitical issues, unlike fiat currencies like the US dollar.
Since China is doing this on a very large scale, it is raising the gold prices thereby making all gold owners rich! š¤
Private Investors have Joined the Party
It's not just the PBoC that's buying goldā even private Chinese investors are following the central bankās lead.
Chinese gold ETFs received their largest-ever monthly inflow of $1.3 billion (17 tonnes) in April.
Chinese bonds and savings accounts are hardly attractive due to low interest rates. Since 2016, Chinese stocks have been unstable and flat. Chinese real estate market is, at best, wobbly today.
No wonder gold has become the go-to investment in China!
It's not just the Dragon Thatās Golden!
China isn't the only country boosting its gold reserves.
The BRICS+ countries (Brazil, Russia, India, China, South Africa, plus new members like Egypt, Ethiopia, Iran, and UAE) are all in on this gold rush, too.
Making the Case for Gold āØ
Okay, China is buying gold, other central banks are also adding gold to their reserves, and gold imports are increasing across the globe. But how does this impact you?
Besides its rising value, gold can add immense value to your investment portfolio. Hereās how:
Enhance Your Portfolioās Stability
Adding gold to your portfolio can spread risk and reduce exposure to traditional financial assets, enhancing financial stability.
Consider the performance of gold versus equity since 2008 (chart below).
The yellow line (gold) in the following chart has risen steadily whereas the blue line (equity) has sharp highs and lows demonstrating goldās lower volatility.
Also, notice that gold returns have not lagged Nifty returns by a lot!
Protect Your Wealth from Uncertainties
During times of uncertainty, such as geopolitical tensions, wars, or natural disasters, gold holds its value, while traditional assets like stocks react negatively.
Gold prices went up by ~5% while the Nifty crashed by 37% in a matter of a few days before the COVID lockdown started.
Buy Any Time, Sell Any Time
Gold is a highly liquid asset, meaning it can be easily bought and sold in global markets. This liquidity ensures that you can quickly convert your gold investments into cash if needed.
Goldās low volatile nature and steady price rise mean you most likely wonāt sacrifice returns in exchange for its liquidity.
Gold's enduring appeal, reinforced by central bank demand, makes it a value-adding asset to your portfolio. Include it to enhance your portfolioās stability, reduce risk, and potentially achieve better long-term outcomes.
Readerās Spotlightš”
This is your space to truly connect with me.
Whether you're curious about investing strategies, market trends, or anything finance-related, Iād love to hear from you! Simply reply to this email with your question. Each week, I'll select the most insightful question and provide a detailed answer in our next issue.
Go ahead and ask your questions. I can't wait to read them and engage in meaningful conversations!
Cheers,
Madhu,
Founder, Altcase