Op-Ed: China is buying gold as an investment alternative to markets – Why?

The National Crime Agency said Russia was using gold to evade sanctions – Copyright AFP DENIS LOVROVIC

The Chinese investment market is gigantic. Chinese money moves around the world in property, stock markets, and other investments at lightning speed. Chinese buyers reposition the way you’d turn on your phone. This massive and hyperresponsive Chinese market is buying gold and has been for a while.

Gold is famous worldwide as a hedge against tough times as well as inflation. It’s easy to buy. More to the point, and equally traditional, you can buy gold anywhere in the world.

You can have a nest egg outside your own jurisdiction. It’s portable, too. There’s capital waiting for you wherever you bought your gold.

We’re talking about investment quality gold, 99.9% pure, not bits and pieces which are often “diluted” with other metals. This gold is typically available in one-ounce ingots. Historically, some of this gold has been on the market for centuries in one form or another. Quite a lot of it is reprocessed into modern ingots.

A look at historical gold prices shows some sudden surges, and big highs and lows. It’s actually a pretty scary insight into investment patterns.

The retail gold market is very straightforward. The gold futures market is a very different ball game. You can lock in a future contract price, and/or short that price. This is a fairly conservative market. Understandably, people don’t want to play chicken with bedrock-style safe-as-possible investments like gold.

China is actually outpacing the world with its gold buying. There’s a pretty good reason for that. The very agile Chinese investment market has tied itself in knots with a spectrum of investment types in various states of repair.

Historically, China has more than its share of geniuses, but it has a fair sprinkling of idiots, too. The vast king tides of money attracted these idiots, and idiotic market positioning followed.

Huge amounts of money went into the Chinese property market and never came back out again. Speculation and some of the strangest capitalization moves you’ll ever see did a lot of damage. Evergrande was the final straw.

This wasn’t Beijing’s idea or anyone else’s in particular. The mice got into the grain, and suddenly there were a lot more mice, doing themselves favors. The highly questionable “empty cities” building spree was an example. Some people made money and now China is paying for it.

The Chinese stock market is a bit different to other stock markets. It moves faster, it bounces, it slides around, and occasionally goes into a coma. What it definitely isn’t is an easy place to make money for smaller investors.

This is the thing about China’s gold spree. Access to hard high-value assets isn’t really all that easy. China is becoming a much more expensive place to live. The middle-class aspirations can’t be based on ideology. Survival can be a major issue, too.

Employment and the future of work are major issues. China has created a lot of jobs recently, but there’s obviously AI and some tricky economics to come. Unemployment is a bit higher than in the West, according to official figures.

You can see where the demand for some solid money is coming from. This is also a great Chinese tradition – Avoiding poverty by any means available. Hence the gold frenzy. The Chinese can buy relatively cheap “gold  beans” as low-cost investments. The gold beans are effectively mass-produced for the Chinese domestic market. This has all happened in a few years.

Maybe China hasn’t got the idea that you send your next generations broke before they’re born, unlike the West. You make sure everything essential is unaffordable and will be far more expensive in future. China has so much to learn from the West about total insanity.

This quite literal bean counting is a variation on the traditional scrimping and saving of the past. It’s not often you see a gold buying option like this institutionalized in a massive market.

This type of “wealth management” could also be the future of the world.